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Deconstructing Duty Free: Investor-StateArbitration as Private Anti-Bribery EnforcementAndrew B. SpaldingUniversity of Richmond, aspaldin@richmond.edu

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Recommended CitationAndrew B. Spalding, Deconstructing Duty Free: Investor-State Arbitration as Private Anti-Bribery Enforcement, 49 U.C.Davis L. Rev. 443(2015).

UC DAVIS LAw REVIEW

VOL. 49, NO. 2 DECEMBER 2015

TABLE OF CONTENTS

SYMPOSIUMCORRUPTION AND COMPLIANCE: PROMOTING INTEGRITY IN A GLOBAL

ECONOMYKEYNOTE BY JAY JORGENSENJay T Jorgensen & C. Kevin Marshall................................. 425

DECONSTRUCTING DUTY FREE: INVESTOR-STATE ARBITRATION AS PRIVATEANTI-BRIBERY ENFORCEMENTAndrew Brady Spalding. ..................................... ....... 443

MEASURING THE IMPACT OF NON-PROSECUTION AND DEFERRED PROSECUTIONAGREEMENTS ON FOREIGN CORRUPT PRACTICES ACT ENFORCEMENTMike Koehler ............................................. ...... 497

THE MYSTERY OF DECLINATIONS UNDER THE FOREIGN CORRUPT PRACTICESACT: A PROPOSAL TO INCENTIVIZE COMPLIANCEBeverley Earle & Anita Cava.......................................567

USING FORM TO COUNTER CORRUPTION: THE PROMISE OF THE PUBLICBENEFIT CORPORATIONJoseph W Yockey ................................................ 623

THE GOOD BRIBEPhilip M. Nichols ................................................ 647

How CHINA'S CRACKDOWN ON CORRUPTION HAS LED TO LESSTRANSPARENCY IN THE ENFORCEMENT OF CHINAS ANTI-BRIBERY LAWSDaniel C.K. Chow ............................................... 685

IS THERE A RIGHT TO BE FREE FROM CORRUPTION?Anita Ramasastry ................................................ 703

CORRUPTION IN INDIA: A VIOLATION OF HUMAN RIGHTSC. Raj Kumar ................................................... 741

@2015 by the Regents of the University of California

Deconstructing Duty Free:Investor-State Arbitration as Private

Anti-Bribery EnforcementAndrew Brady Spalding*

TABLE OF CONTENTSINTRODUCTION .......................... 443

1. ANTI-BRIBERY POLICY AND ITS PROBLEMS... .................. 445A. The Policy ............... ................... 446B. Its Problems ........................... ...... 452

1I. THE NEED FOR PRIVATE ENFORCEMENT .................... 458A. U.S. Experience with Concurrent Public/Private

Enforcement ................................ 458B. The Search for a Private Enforcement Venue ..................... 467C. Looking to Investor-State Arbitration... .................. 470

III. NEUTRALIZING DuTY FREE .......................... 472A. Duty Free's Danger............................. 473B. Deconstructing the Three-Legged Stool ......... ..... 476

1. The Common Law of Contract: ReclaimingRestitution ................................... 476

2. State Liability for Official Bribery: The ILC Articles.. 4803. Anti-Corruption Policy: Dislodging Lagergren.......... 488

CONCLUSION.................................................. 493

INTRODUCTION

"[A]s regards public policy, . . . the law protects not the litigatingparties but the public; or in this case, the mass of tax-payers and other

* Copyright @ 2015 Andrew Brady Spalding. Associate Professor, the Universityof Richmond School of Law. I would like to thank all who provided helpful feedbackon these ideas at the American Society of International Law's International EconomicLaw Interest Group Annual Meeting, and the Duke Corruption Roundtable. I wouldalso like to thank my colleagues at the University of Richmond School of Law, and myvery able research assistants, Dust Knight, Noelle Sanders, and Kate Frisch.

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citizens making up ... the poorest countries in the world."' So statesthe arbitration award in World Duty Free v. Kenya, in which the paneldismissed an investor's claim against the Republic of Kenya forexpropriating its investment. The panel did so because the investoradmittedly procured a government contract by bribing then-PresidentDaniel Arap-Moi. That President Moi had solicited and accepted thebribe proved of little consequence.

Despite its proffered intent to help the poor and advance global anti-corruption policy, the award does neither. Indeed, in practice it willtend to do the opposite. In creating an absolute defense for stateofficials who solicit and accept bribes, Duty Free exacerbates existingimbalances and distortions in anti-bribery enforcement and ultimatelyundermines global anti-corruption policy.

Though Duty Free has become part of the anti-bribery enforcementproblem, investor-state arbitration could actually be part of thesolution. As this article will show, the problems in global anti-briberyenforcement can be explained in part by the nearly exclusive relianceon public enforcement. Almost all we do to hold companiesaccountable for overseas bribery is done by those companies' home-country governments. As Professor Paul Carrington has previouslyobserved,2 investor-state arbitration could supply a partial remedy tothis problem: it could become a venue for the private enforcement ofanti-bribery norms. Among the principal impediments to realizingarbitration's potential as a mode of private anti-bribery enforcement isthe Duty Free holding.

But all is not lost. Duty Free rests upon a kind of three-legged stoolof legal argumentation. Those legs are: 1) the common law of contract;2) principles of state liability for official misconduct; and 3) globalanti-corruption policy. As this article will show, each leg of that stoolis fundamentally flawed; the legal arguments are unpersuasive andoccasionally incorrect. This article seeks to deconstruct that stool,exposing the fatal structural flaws in each leg. It thus clears the wayfor building an arbitral jurisprudence of corruption that actually doeswhat Duty Free attempted: advance global anti-corruption policy in away that will inure to the true victims of corruption, who are thecitizens of the world's developing countries.

Accordingly, Part I describes global anti-corruption policy and theproblems that inhere in this, a nascent stage of worldwide

I World Duty Free Co. v. Republic of Kenya, ICSID Case No. ARB/00/7, 9 181(Oct. 4, 2006), 46 I.L.M. 339 (2007).

2 Paul D. Carrington, Enforcing International Corrupt Practices Law, 32 MICH. J.INT'L L. 129, 160-64 (2010).

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enforcement. Part 11 makes the case for private anti-briberyenforcement. It locates the original international anti-bribery law, theU.S. Foreign Corrupt Practices Act ("FCPA"),3 in the broader contextof U.S. white-collar enforcement, and shows how the use ofconcurrent public and private enforcement in white-collar lawgenerally has produced benefits that could partially mitigate theproblems of anti-bribery enforcement. It further shows howcompanies have thus far searched in vain for an effective venue forprivate anti-bribery enforcement, and how investor-state arbitrationcould become that venue. In Part III, I first describe the Duty Freeholding and its dangers. I then pick apart each of the three legs onwhich it rests, one at a time. In conclusion, I allude to some of theissues that must be resolved if investor-state arbitration is to become avenue for the private enforcement of anti-bribery norms, and showhow permitting foreign companies to pursue corruption claims wouldactually serve to defend investor-state arbitration from some of itsfiercest critics.

1. ANTI-BRIBERY POLICY AND ITS PROBLEMS

The statute that heralded the beginning of the modern anti-corruption movement - the FCPA - was very much a creature of thegeo-political climate in which it arose. That climate was the Cold War,and the FCPA was thought to be an instrument of foreign policy. Butalthough the Cold War's rhetoric and worldview now seemantiquated, the underlying policies of the FCPA are not. This sectionwill show how those who testified before Congress on the need for aforeign bribery prohibition consistently argued, irrespective ofpartisan affiliation, that the FCPA's purpose was to promote economicand legal development abroad. That is, the prohibition on thebusiness-related bribery of foreign officials would promote the kind oftransnational investment that strengthened, rather than weakened,host-country economic and legal institutions. The FCPA, in turn gaverise to a global movement to prohibit such bribes. After brieflysummarizing this historical arc in Section A, Section B will show howthe current moment in the historical evolution of anti-bribery

3 Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494(1977) (codified as amended at 15 U.S.C. HE 78m(b), (d)(1), (g)-(h), 78dd(1)-(3),78ff (2012)), amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L.No. 100-418, 102 Stat. 1107 (1988) (codified as amended at 15 U.S.C. H§ 78dd(1)-(3), 78ff); International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No.105-366, 112 Stat. 3302 (1998) (codified as amended at 15 U.S.C. H§ 78dd(1)-(3),78ff); see also infra Part L.A.

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enforcement is, perhaps not surprisingly, fraught with problems. Butthese problems must be acknowledged if we are to fashion anarbitration jurisprudence that advances, rather than retards, globalanti-bribery policy.

A. The Policy

Prior to the mid-1970s, foreign bribery was a foreign law issue.Capital exporting nations generally assumed that it was the provinceof the foreign jurisdiction, the host country, to address briberyoccurring within its jurisdiction. On its face, this was not an entirelyindefensible position; virtually every government in the world has onits books a prohibition on the bribing of domestic officials.Accordingly, none of the major capital exporting nations had yet toadopt a prohibition on the bribery of foreign officials. Indeed, withone curious but obscure exception,4 such laws were completelyunknown. Considerations of comity counseled deference to domesticlaws and, just as importantly, to those jurisdictions' judgment as tohow to enforce, or whether to enforce, the prohibition. It was simplyassumed among capital-exporting nations that the host countrieswould decide how, or whether, to prosecute bribery, even if thatbribery was committed by foreign corporations.

Events of the mid-1970s would expose the shortcomings of thisapproach. Two concurrent historical events combined to precipitateenactment of the FCPA. In the wake of the Watergate scandal, the U.S.Securities and Exchange Commission ("SEC") conducted aninvestigation into the use of corporate slush funds for campaigncontributions. The investigation revealed that in addition to usingthese funds to contribute to U.S. campaigns, hundreds of U.S.corporations were similarly using these funds to bribe overseasgovernment officials.5

The second event6 was the discovery that the LockheedCorporation, the flagship U.S. defense contractor, had paid bribes to

4 Sweden had actually enacted a prohibition on the bribery of foreign publicofficials, a fact little-appreciated by the capital exporting nations at that time or bymore contemporary commentators. See Philip M. Nichols, The Myth of Anti-BriberyLaws as Transnational Intrusion, 33 CORNELL INT'L L.J. 627, 638 n.60 (2000), availableat http://scholarship.law.cornell.edu/cgilviewcontent.cgi?article= 1477&context=cilj.

5 U.S. SEC. & EXCH. COMM'N, REPORT OF THE SECURITIES AND EXCHANGECOMMISSION ON QUESTIONABLE AND ILLEGAL CORPORATE PAYMENTS AND PRACTICES 2-3(1976).

6 This discussion of the Lockheed revelations and subsequent congressionaltestimony originally appeared in Andrew Brady Spalding, Corruption, Corporations,

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government officials in Japan, the Netherlands, and Italy to win bids.Each of these countries was thought critical to the growth of liberal-democratic institutions, and revelations of corporate briberyundermined liberalism's credibility. A sample of congressionaltestimony in support of what would become the FCPA provesillustrative. Congressman Stephen Solarz, a Democrat from New York,testified in 1976: "It is important to look at the problem of overseaspayments in broader terms than simply a matter of economics or evenmorality."7 Solarz explained that Lockheed's payments to Japaneseofficials put "'[tihe democratic system in Japan ... in grave danger." 8

Solarz thought the "most serious" and "delicate" situation was Italy,whose government was equally split between a liberal party and theCommunist Party.9 He noted that "[a]llegations of payments byLockheed served to advance the Communist cause in Italy where theCommunist bloc was strengthened by the sight of corruptcapitalism."10

Members of Congress feared that the Communist Party could gain amajority in the Italian parliament and the prospects for buildingdemocratic institutions would be lost." The implications of corporatebribery for the U.S. effort to promote the growth of democraticinstitutions were thus "staggering and in some cases, perhaps

and the New Human Right, 91 WASH U. L. REV. 1365, 1371-75 (2014) [hereinafterCorruption]. For a discussion of these foreign policy events, and their significance inunderstanding the purposes of the FCPA, see generally U.S. DEP'T OF JUSTICE & U.S.SEC. & EXCH. COMM'N, A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT3 (Nov. 14, 2012) [hereinafter RESOURCE GUIDE], available at http://www.justice.gov/criminal/fraudl/fcpa/guidance/guide.pdf.

7 Foreign Payments Disclosure: Hearings Before the Subcomm. on ConsumerProtection and Finance of the Comm. on Interstate and Foreign Commerce, 94th Cong.140 (1976) [hereinafter 1976 House Consumer Protection Subcommittee Hearing](statement of Rep. Stephen S. Solarz).

8 Unlawful Corporate Payments Act of 1977: Hearings Before the Subcomm. onConsumer Protection and Finance of the Comm. on Interstate and Foreign Commerce, 95thCong. 172 (1977) [hereinafter 1977 Protection Hearings] (statement of Rep. Stephen S.Solarz) (quoting "a very senior politician close to former [Japanese] Prime MinisterTakeo Mike"). Solarz further testified that Japanese opponents to the U.S.-Japan alliancewere "handed a terribly effective weapon to drive a wedge between two close allies. At atime of uncertainty due to the shifting balances of power in Asia, our strongest and moststable ally in the region [was] undergoing unnecessary turbulence, and [a] relationshipwhich is at the very heart of our foreign policy [was] potentially jeopardized." 1976House Consumer Protection Subcommittee Hearing, supra note 7, at 141.

9 See 1976 House Consumer Protection Subcommittee Hearing, supra note 7, at 141.10 1977 Protection Hearings, supra note 8, at 173.11 See 1976 House Consumer Protection Subcommittee Hearing, supra note 7, at 141.

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irreversible."1 2 The example of Italy demonstrated that "Communistand other anti-U.S. forces are quick to take advantage of any evidenceof immorality or corruption associated with pro-Westerngovernments. Both fear and resentment are generated among foreignofficials who become increasingly hostile as the United Statescontinues to expose traditional corrupt practices abroad." 13 This viewwould actually prove non-partisan. It was articulated with equal forceby members of both the Ford and Carter administrations, 4 andexpressed most forcefully by Democrat George Ball, who had becomefamous as a member of the Kennedy and Johnson administrations forhis opposition to the Vietnam War. Ball explained:

The vast volume of speeches, pamphlets, and advertising copyand propaganda leaflets extolling the virtues of free enterpriseare cancelled every night when managements demonstrate bytheir conduct that a sector of multinational business activity isnot free; it is bought and paid for. This is a problem that, likeso many others, has relevance in the struggle of antagonistic

12 Id. at 2.13 1977 Protection Hearings, supra note 8, at 173.14 Mark B. Feldman, Deputy Legal Adviser in the Department of State under

President Ford, testified that corruption "jeopardizes the important interests we sharewith our friends abroad" because it undermines a form of government "upon whichsocial progress, economic justice, and perhaps, ultimately, world peace depends . . . ."The Activities of American Multinational Corporations Abroad: Hearings Before theSubcomm. on International Economic Policy of the H. Comm. on International Relations,94th Cong. 23 (1975) (statement of Mark B. Feldman, Deputy Legal Adviser, U.S.Department of State). Treasury Secretary William E. Simon further stated that it"adversely affect[s] our relations with foreign governments and can contribute to ageneral deterioration in the climate for fair and open international trade andinvestment." Foreign and Corporate Bribes: Hearings Before the Comm. on Banking,Housing, and Urban Affairs, 94th Cong. 85 (1976) [hereinafter 1976 Senate BankingHearings] (statement of William E. Simon, Secretary of the U.S. Department of theTreasury). Ford's Commerce Secretary, Elliot L. Richardson, further articulated:"Bribery ... threatens to poison relationships between the United States and nationswith which we have long had mutually beneficial political and commercial ties." Id. at76. Ultimately, President Ford would formally state that reports of bribery "tend todestroy confidence" in liberal-democratic institutions. Gerhard Peters and John T.Woolley, Gerald R. Ford "Special Message to the Congress Transmitting ProposedForeign Payments Disclosure Legislation," August 3, 1976, THE AMERICAN PRESIDENCYPROJECT, http://www.presidency.ucsb.edu/ws/?pid=6254. When the CarterAdministration moved in, his Treasury Secretary stated, "The Carter Administrationbelieves that it is damaging both to our country and to a healthy world economicsystem for American corporations to bribe foreign officials." Foreign Corrupt Practicesand Domestic and Foreign Investment Disclosure: Hearing Before the S. Comm. onBanking, Housing, and Urban Affairs, 95th Cong. 67 (1977) (statement of W. MichaelBlumenthal, Secretary of the U.S. Department of the Treasury).

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ideologies; for, when our enterprises stoop to bribery andkickbacks, they give substance to the communist myth -already widely believed in Third World countries - thatcapitalism is fundamentally corrupt.15

Thus, even the most liberal, reform-minded advocates recognized theimplications of international corporate bribery for the countries inwhich the bribes occurred. With the integration of these themes intoboth the Senate' 6 and House17 Reports, a notably bipartisan vision ofthe FCPA's overseas role emerges. This new anti-bribery statute wasdesigned not merely to improve U.S. corporate governance, but tobuild liberal-democratic institutions abroad. The United Statesadopted this law not to wash its hands of foreign corruption, but tocreate institutions that protect fundamental rights and promoteeconomic prosperity.

The resulting legal regime criminalized the paymenti8 of bribes1 9 toforeign officials. 20 Among the major capital exporting nations, the

15 1976 Senate Banking Hearings, supra note 14, at 41-42.16 See S. REP. No. 95-114, at 3 (1977).17 See H.R. REP. No. 95-640, at 4-5 (1977).18 The FCPA forbids any act "in furtherance of an offer, payment, promise to pay

or authorization of the payment. . . ." The DOJ has indicated that this prohibitiononly applies to corrupt payments that are made with the intent to induce or influenceaction from the foreign official recipient. Since this section focuses on the corruptintent, the FCPA does not require that the payment or action be completed or that therecipient of the bribe be known. See RESOURCE GUIDE, supra note 6, at 14, 92.

19 The phrase "anything of value" is not defined through the statutory language orlegislative history. Yet, since foreign officials can be persuaded in more ways than justthrough monetary payments, the FCPA has been enforced if "anything of value" wasgiven, directly or indirectly, to a foreign official. This term can include cash, jewelry,gift certificates, travel, electronics, donations, or cars. BuSINESS CRIME 9 18.04(3)(c)(MB 2015).

20 The FCPA defines "foreign official" as "any officer or employee of a foreigngovernment or any department, agency, or instrumentality thereof. . . ." 15 U.S.C.§ 78dd-1(f)(1)(A) (2012). Until recently, the notion of an "instrumentality" wasambiguous and remained undefined by the courts. Due to the lack of clarification, theidea that state-owned entities or enterprises qualified as an "instrumentality" had beenchallenged in recent cases. In United States v. Esquenazi, the U.S. Court of Appeals forthe Eleventh Circuit held that state-owned enterprises do qualify as an"instrumentality," as it was defined "an entity controlled by the government of aforeign country that performs a function the controlling government treats as itsown." See Christopher Hoffmann, Note, The Dark World of Interpreting the ForeignCorrupt Practices Act: Arguments, Cases and Critiques Illuminating Whether Employees ofState Owned Enterprises Are "Foreign Officials," 12 J. INT'L Bus. & L. 115, 116 (2013);Richard L. Cassin, Supremes Won't Review Esquenazi "Foreign Official" Challenge,FCPA BLOG (Oct. 6, 2014), http://www.fcpablog.com/blog/2014/10/6/supremes-wont-review-esquenazi-foreign-official-challenge.html.

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FCPA was the first and only such statute in the world. Post-enactment, sentiment arose among the U.S. business community andthen in Congress that unilateral enactment of this prohibition put U.S.companies at a competitive disadvantage. Perhaps for this reason, andcontent to have made a symbolic gesture, the U.S. Government hardlyenforced the statute at all. Then, in 1988, Congress formally requestedthat the President negotiate an international instrument with theOrganisation for Economic Co-operation and Development ("OECD")to require member nations to enact FCPA-type prohibitions on thebusiness-related bribing of foreign officials.21 After ten years of U.S.lobbying, the OECD enacted the Convention on Combating Bribery ofForeign Public Officials in International Business Transactions.2 2

This same period of time saw an explosion of internationalinstruments that collectively went beyond the FCPA's and OECD'sprohibition on the supply of bribes and prohibited the demand ofbribes as well. The year 1996 saw the enactment of the Inter-AmericanConvention against Corruption ("IACAC") by the Organization ofAmerican States.23 A year later, the European Union ("EU") enactedthe Convention on the Fight Against Corruption Involving Officials.24

21 See Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418,§ 5003, 102 Stat. 1107 (1988). The amended statute included the following directive:"It is the sense of the Congress that the President should pursue the negotiation of aninternational agreement, among the members of the Organization of EconomicCooperation and Development, to govern persons from those countries concerningacts prohibited with respect to issuers and domestic concerns by the amendmentsmade by this section. Such international agreement should include a process by whichproblems and conflicts associated with such acts could be resolved." Id.; see also S.REP. NO. 105-277, at 2 (1998) (describing efforts by Executive Branch to encourageU.S trading partners to enact legislation to FCPA).

22 See Convention on Combating Bribery of Foreign Public Officials inInternational Business Transactions art. 1, Dec. 18, 1997, 37 I.L.M. 1.

23 Organization of American States: Inter-American Convention AgainstCorruption, Mar. 29, 1996, 35 1.L.M. 724, O.A.S.T.S. No. B 58. This Conventiondirects the participating governments to create criminal sanctions for corrupt actsinvolving public officials and/or those acting on their behalf. (Neither civil remediesnor corrupt acts involving only private entities/individuals are included in thedirectives of the Convention.) The prohibited acts include "the solicitation oracceptance, directly or indirectly, by a government official or a person who performspublic functions...." and/or "[t] he offering or granting, directly or indirectly, to agovernment official or a person who performs public functions, of any article ofmonetary value, or other benefit, such as a gift, favor, promise or advantage forhimself or for another person or entity, in exchange for any act or omission in theperformance of his public functions." Id. art. VI (1)(a)-(b).

24 Convention on the Fight Against Corruption Involving Officials of theEuropean Communities or Officials of Member States of the European Union, May 26,1997, Oj. (C 195) 40. The governments of Belgium, Denmark, Germany, Greece,

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Then in 1999, the Group of States Against Corruption, whose forty-nine members include the United States, EU member nations, andothers, adopted the Criminal Law Convention on Corruption 25 andthe Civil Law Convention on Corruption.26 The year 2003 saw anotherregional convention, the African Union Convention on Preventing andCombating Corruption,27 and then ultimately a truly global agreement,

Spain, France, the Republic of Ireland, Italy, Luxembourg, the Netherlands, Austria,Portugal, Poland, Finland, Sweden, and the United Kingdom of Great Britain andNorthern Ireland on May 26, 1997 entered into this Convention. The Conventionprohibits both the active (supply) and passive (demand) participation in corruptactivities. The Convention states that the request or receipt of "advantages of any kindwhatsoever" by a government official "directly or through an intermediary" for himselfor a third party (passive corruption) is a criminal act and punishable as such.Additionally, any person who "promises or gives, directly or through an intermediary,an advantage of any kind whatsoever to an official for himself or for a third party"(active corruption) is also a criminal act, punishable by the applicable laws of thecountry in which the offense took place. Id. (emphasis added).

25 See Criminal Law Convention on Corruption, Jan. 27, 1999, E.T.S No. 173. OnJanuary 27, 1999, forty-nine governments including the members of the EuropeanCommunity as well as other nonmember states, such as the United States, entered intothis Convention. See id.; Group of States Against Corruption, COUNCIL OF EUROPE,http://www.coe.int/t/dghl/monitoring/greco/general/3.%20What%20is%20GRECOen.asp. This group of nations is known as GRECO ("Group of States AgainstCorruption"). The Convention directs the participating states to create criminalliabilities for acts of corruption involving public officials, as well as similar corruptacts between private entities, but does not call for the creation of civil remedies. Bothactive and passive corruption (bribery) is included in the prohibited acts and thebribery can involve any "undue advantage" given, received, promised, or requested,either directly or through a third party. The Convention also calls for criminalliabilities for those who 1) aid and abet bribery, 2) trade in influence, 3) laundermoney from the proceeds of bribes, and/or 4) alter or create accounting records in anattempt to conceal corrupt activity. Criminal Law Convention on Corruption, supra.

26 See Civil Law Convention on Corruption, Nov. 4, 1999, E.T.S. No. 174. TheCivil Law Convention on Corruption was entered into on November 4, 1999, by thesame forty-nine governments that constitute GRECO. The Convention expands theCriminal Law Convention on Corruption by directing the participating nations tocreate legislation that would provide civil (private) remedies for those who have"suffered damage as a result of acts of corruption, to enable them to defend theirrights and interests, including the possibility of obtaining compensation for damage."The acts of corruption referred to in this Convention relate directly to the prohibitedacts in the Criminal Law Convention and include corrupt acts involving publicofficials and between private entities. See id.

27 African Union Convention on Preventing and Combating Corruption, Jul. 11,2003, 43 I.L.M. 5, available at http://www.au.int/en/content/african-union-convention-preventing-and-combating-corruption. The Member States of the African Unionentered into the African Union Convention on Preventing and Combating Corruptionon July 11, 2003. This Convention deals with acts of corruption involving publicofficials and between private entities. The Convention speaks to both the "supply" andthe "demand" sides of corrupt activities, and provides for criminal penalties for any

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the United Nations Convention Against Corruption. 28 Truly, a globalpublic policy against transnational bribery, on both the supply anddemand sides, had emerged.

These international instruments remain important statements ofpolicy, and harbingers of future enforcement commitments. Suchpolicies, and aspirations, were captured quite well in the Duty Freeaward. But as the next section shows, the Duty Free panel seemed notto recognize how far removed these ideals are from currentenforcement, the problems that this intermediate state of enforcementcreates, and how the Duty Free logic will compound them.

B. Its Problems

In principle, international anti-bribery law could achieve a near-perfect degree of success in either of two ways. If all capital importingcountries enforced their domestic bribery prohibitions, the problemwould be solved: any company that did business in Nigeria orVenezuela or Bangladesh would know that it could not pay bribesthere and would suffer the consequences for doing so. Alternatively,we could achieve the same measure of success by implementingeffective enforcement across all capital-exporting countries: no matterwhere they did business, companies subject to the jurisdiction of theUnited States, U.K., Germany, China, and Turkey would all play bythe same rules, subject as they were to the effective enforcement oftheir home country's foreign bribery prohibition. But neither is truetoday; anti-bribery enforcement remains highly nascent and, as such,suffers from a number of deep structural imperfections.

and all participants, whether directly or indirectly involved. The prohibited actsinclude solicitation or acceptance and offer or grant of any 1) "undue advantage;" 2)goods of monetary value; 3) other benefits, including gifts, favors, promises, oradvantages; and/or 4) illicit enrichment (any significant increase in assets that thepublic official or private entity "cannot reasonably explain in relation to his or herincome"). The Convention does not state that any civil remedies are to be provided bythe participating countries. See id.

28 United Nations Convention Against Corruption, Dec. 14, 2005, 2349 U.N.T.S.41. Nearly every member of the United Nations has entered into the United NationsConvention Against Corruption, dated December 14, 2005. This Convention statesthat participating nations must provide civil remedies and criminal liabilities for thecorrupt acts of public officials as well as private entities. Additionally, the nations areinstructed to implement measures to aid in the prevention of private and publiccorrupt actions. The prohibited acts include offering or providing and requesting oraccepting an "undue advantage," either directly or indirectly. Undue advantage is notdefined; however, the Convention specifically notes bribery, laundering of proceeds ofcorrupt act, embezzlement, trading in influence, illicit enrichment, concealment, andobstruction of justice as prohibited acts. Id.

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Until these imperfections are overcome, new players in the anti-corruption arena, such as International Centre for Settlement ofInvestment Disputes ("ICSID"), should not aggravate them. More tothe point, ICSID should not do so in the name of fighting corruptionor, worse yet, helping the poor. As this section will show, modernanti-bribery enforcement suffers from at least three distinct problems:first, it disproportionately focuses on the supply of bribes (as opposedto the demand); second, supply-side enforcement is disproportionatelyconcentrated in a small fraction of the world's capital exporters; andthird, this state of enforcement now produces uncertain results inreducing overseas bribery, and may in some instances even exacerbatebribery. The Duty Free jurisprudence compounds each problem.

Anti-bribery enforcement began in earnest only after theinternational conventions were ratified. With the so-called playingfield of international business now supposedly leveled,29 and given anumber of other changes both domestic and international, 30 the once-dormant FCPA grew teeth. Though the U.S. Department of Justice("DOJ") and SEC had brought only a negligible number ofenforcement actions since 1977,31 beginning around 2004enforcement became quite aggressive.32 But the enforcement stagemirrored the enactment stage: having previously enacted unilaterally aforeign bribery prohibition, the United States was now unilaterallyenforcing one.

29 The metaphor of the FCPA "leveling the playing field" is imbedded in thestatute's legislative history. For a critique of this metaphor, see, for example, Spalding,Corruption, supra note 6, at 1370, noting: "If business is a game and multinationalcompanies are the players, what then are the developing countries in which they dobusiness? The spectators? Or the turf?"

30 See Laura E. Kress, How The Sarbanes-Oxley Act Has Knocked the "SOX" off theDOJ and SEC and Kept the FCPA on Its Feet, 2009 Pirr. J. TECH. L. & POL'Y 1, 1(arguing that the Sarbanes-Oxley Act invigorated enforcement of the FCPA).

31 In the first two decades after the FCPA was passed, the DOJ and SEC onlyprosecuted seventeen companies and thirty-three individuals, in total. This equates toonly about two prosecutions per year. See Cortney C. Thomas, Note, The ForeignCorrupt Practices Act: A Decade of Rapid Expansion Explained, Defended, and Justified, 29REV. LITIG. 439, 439-49 (2010).

32 See id. The last decade has seen a drastic increase in the number of FCPA-related cases prosecuted. In 2002, only three cases were being investigated. Thenumber of FCPA prosecutions then doubled between 2006 and 2007, and in contrast,there was a total eighty-four open investigations by the end of 2007. Id. Further, theDOJ and SEC pursued eighty-five enforcement actions between 2007 and 2012, whichyielded almost four billion dollars in settlement amounts. Mike Koehler, KeepingFCPA Enforcement Statistics in Perspective, FCPA PROFESSOR (Jan. 23, 2013),http://www.fcpaprofessor.com/keeping-fcpa-enforcement-statistics-in-perspective.

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While some capital-exporters within the OECD have begun tofollow the United States' example, the data shows a playing field that isfar from level. The OECD has compiled enforcement data for the years1999 to 2013, the life of the OECD Convention. Of the 41 parties tothe OECD Convention, the United States and Germany each stand outas substantial enforcers. Total criminal and civil/administrativesanctions (against persons both legal and natural) for the United Statesis approximately 250, and for Germany, approximately 190.33 Fromthere, the drop off is precipitous: the unlikely candidates of Korea andHungary have roughly 20 actions each; France, Italy, the UK andJapan have about 10 each; and all other members are at or near zero.34

These numbers do not include the major capital exporting nations thathave not joined the OECD Convention. Though Brazil and Russiahave each joined the Convention while not (yet) being full membersof the OECD,35 conspicuous nonparties to the Convention includeIndia and, much more significantly, China.36

33 See Working Group on Bribery: 2013 Data on Enforcement of the Anti-BriberyConvention, ORG. FOR EcoN. CO-OPERATION & DEV. (Sept. 2014), http://www.oecd.org/daf/anti-bribery/Working-Group-on-Bribery-Enforcement-Data-2013.pdf.

34 Id. Transparency International uses a point system to analyze the enforcementlevel of OECD countries. Points are allotted based on the level of action that the countrytakes, such as initiating an investigation or commencing a case. Further, more pointswill be allotted if the case involves a major company bribing senior officials, or if it endsin sanctions. The sum of these points is then multiplied by the country's share of worldexports over a four-year period. Following the calculations, the country will bedesignated into one of the following categories of enforcers: Active Enforcement (U.S.,U.K., Germany, and Switzerland); Moderate Enforcement (Italy, Canada, Australia,Austria, Finland); and then the remainder OECD nations falling under LimitedEnforcement or Little to No Enforcement. In contrast, the report from the WorkingGroup on Bribery only considers foreign bribery convictions that have been reported bygovernment representatives. Transparency International instead examines cases ofmoney laundering, tax evasion, accounting fraud or violations of the requisite disclosurestandards, and the data is collected through the organization's selected experts. See FritzHeimann et al., Exporting Corruption: Progress Report 2014: Assessing Enforcement of theOECD Convention on Combating Foreign Bribery, TRANSPARENCY INT'L (2014),httpi/www.transparency.org/whatwedo/publication/exporting-corruption-progressreport_2014 assessing-enforcement of theoecd (discussing the status of enforcement inall of the parties to the OECD Anti-Bribery Convention, with the exception of Latvia).

35 See Elizabeth K. Spahn, Implementing Global Anti-Bribery Norms: From theForeign Corrupt Practices Act to the OECD Anti-Bribery Convention to the U.N.Convention Against Corruption, 23 IND. INT'L & COMP. L. REv. 1, 11 (2013) (describingthe globalization of anti-bribery laws since the implementation of the FCPA).

36 See Jeffery R. Boles, The Two Faces of Bribery: International Corruption PathwaysMeet Conflicting Legislative Regimes, 35 MICH. J. INT'L L. 673, 684-85 (2014) (analyzingthe dynamics of bribery through public and private sectors and the different legislativeapproaches to criminalizing bribery). China has adopted a foreign bribery prohibition

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Because this enforcement is uneven, the enforcing states -principally but not exclusively the United States - are activelypressuring other countries to follow suit and ramp up enforcement.This pressure is exerted primarily through the peer review mechanismof the OECD Convention, whereby member states are periodicallyreviewed for their enforcement efforts.3 ' While this naming andshaming of peer review has produced incremental increases inenforcement, the increments are modest by any account, as the abovedata show.

Non-enforcement among OECD member states is due to a host ofreasons. Some countries may lack political will, having not yet decidedthat foreign bribery is a high-priority item. Or, where the political willexists, the funding might not; states have not yet allocated the neededresources to enforcement agencies.38 Similarly, enforcement theoriesand practices that have made FCPA enforcement possible in thiscountry - particularly the independent investigation, voluntarydisclosure, and cooperation credit - do not exist in many countries. 39

Finally, the structure or culture of enforcement agencies may not

very recently, ostensibly to honor its obligations under the United NationsConvention against Corruption ("UNCAC"). The UNCAC requires states create andenforce anti-corruption and anti-bribery measures, and for the member states toexhibit cooperation between the other ratifying states to promote the implementationof the Convention. China, unlike its western counterparts, originally opposed anymechanism other than self-review, including the peer review system. Without amethod for rigorous enforcement, China gradually has begun to implement theconditions of the UNCAC despite the fact that China ratified the Convention in 2006.India has not even gone that far, and presently has no foreign bribery prohibition onits books. Samuel R. Gintel, Fighting Transnational Bribery: China's Gradual Approach,31 Wis. INT'L L.J. 1, 26-27 (2013) (explaining the weak framework of China's adoptedlegislation that criminalizes bribery of foreign public officials).

37 The peer review mechanism is used by OECD member states on other OECDmember states to review the policies implemented and practices used in a wide rangeof areas concerning economic and social development, including but not limited tobribery. The review creates a way for states to learn from each other and to insurecompliance with OECD principles and standards by facilitating discussions regardingbest practices and policymaking in a less formal manner. The review does not involvejudgments, hearings, or punishments; instead, at the conclusion of the review, areport is published, which includes the state's areas of accomplishments as well asrecommendations for areas that may need improvement. What Is Peer Review?, OECD,http://www.oecd.org/site/peerreview/whatispeerreview.htm (last visited July 5, 2015).

38 See Heimann et al., supra note 34, at 8.39 See Misty Robinson, Global Approach to Anti-Bribery and Corruption, an

Overview: Much Done, but a Lot More to Do, 37 T. MARSHALL L. REV. 303, 311-20 (2012)(discussing enforcement in the U.S. compared to other countries).

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encourage or incentivize the kind of entrepreneurial innovation thatgave rise to FCPA enforcement.40

This intermediate stage of anti-bribery enforcement suffers fromthree distinct problems. The first and most obvious is that unevenenforcement among capital-exporters delays the pace at which theworld's multinational corporations reform their overseas practices;because companies outside the jurisdiction of the United States,Germany, and perhaps the U.K. may bribe without fear of penalty, wecan only assume that they are doing so to a significant degree.Assuming bribery reduction to be a good thing, limited enforcement isa problem in and of itself.41

Second, the emerging international anti-bribery enforcement regimeis almost exclusively supply-side. While countries like China andBrazil are notably going through historic changes in the culture andpractice of domestic bribery enforcement, the majority of anti-briberyenforcement in international business transactions occurs on thesupply side. That is, the law focuses on the supply of bribes - themultinational corporation entering a foreign market - rather than onthe "demand" of bribes from the host country government officials.42

Companies are therefore penalized for participating in endemicbribery environments that existed long before the companies arrivedon the scene. Believing that the DOJ's zeal for near-unilateral andexclusively supply-side enforcement is fundamentally an attack ontheir legitimate interests, U.S. businesses launched via the U.S.Chamber of Commerce, an aggressive campaign to reform (orallegedly weaken) the FCPA.43

4o See Heimann et al., supra note 34, at 8.41 Paul Carrington has also acknowledged the current limitations of public

enforcement. See Carrington, supra note 2, at 142-49.42 This distinction is often made through use of the terms "active" and "passive"

bribery (corresponding to the supply and demand, respectively). These terms weredefined and implemented into the sphere of bribery law when the European Unionadopted the Convention on the Fight Against Corruption Involving Officials of theEuropean Communities or Officials of Member States of the European Union in 1997,and again when the Council of Europe adopted the Criminal Law Convention onCorruption in 1999. Both Conventions explicitly criminalized active and passivebribery, but the Criminal Law Convention on Corruption extended this requirementto forty-seven countries, extending past the twenty-seven countries in the EuropeanUnion. See Eric C. Chaffee, The Role of the Foreign Corrupt Practices Act and OtherTransnational Anti-Corruption Laws in Preventing or Lessening Future Financial Crises,73 OHIO ST. L.J. 1283, 1301 (2012).

43 The U.S. Chamber of Commerce proposed amendments to the FCPA that wouldinclude a defense of compliance, restrict a company's liability for a subsidiary or actionsthat occurred before it acquired a secondary company, creating a definition of "foreign

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The third problem may be even more troubling, and springs fromthe first two. As I have argued at length in previous articles** and willonly summarize here, both empirical data and basic economicmodeling suggest the alarming possibility that uneven enforcementmight not reduce net levels of bribery in the host country. Indeed, incertain circumstances, it may actually increase net levels of host-country bribery. Consider the perfect storm. Host-country bribery issystemic, but the host country's laws prohibiting the bribing of its ownofficials are not enforced. Foreign companies are entering that hostcountry and playing by different rules: some firms are subject to theirhome country's prohibition on foreign bribery while some are not.Given poor incomes, pervasive bribery, and a culture of tolerance, thehost country's officials will tend to confer benefits to the bribe-payingfirms. This combination produces the following effect. Wheretransactions shift from firms subject to an anti-bribery law to firms notso subject (what economists have called ownership substitution),45 net

official," and requiring "willfulness" for a corporation to be held criminally liable. SeeANDREW WEISSMANN & ALLXANDRA SMIH, U.S. CHAMBER INST. FOR LEGAL REFORM,RESTORING BALANCE: PROPOSED AMENDMENTS TO THE FOREIGN CORRUPT PRACTICES ACT 1, 7(Oct. 2010), https//jenner.com/system/assets/publications/216/originaVRestoringBalanceProposedAmendments totheForeign-Corrupt PracticesAct.pdf?1318976610.

44 See generally Andrew Brady Spalding, The Problem of Deterring ExtraterritorialWhite-Collar Crime, 17 CHAP. L. REV. 355 (2014) (arguing that in internationalbusiness law, enforcement authority will tend to fail); Andrew Brady Spalding,Restorative Justice for Multinational Corporations, 76 OHIO ST. L.J. 357 (2015)[hereinafter Restorative Justice], available at http://ssrn.com/abstract=2403930(providing a model for extraterritorial white-collar criminal punishment); AndrewBrady Spalding, Unwitting Sanctions: Understanding Anti-Bribery Legislation asEconomic Sanctions Against Emerging Markets, 62 FLA. L. REv. 351 (2010) (proposingvarious reforms to the text and enforcement of international anti-bribery legislation todeter bribery without deterring investment).

45 See Alvaro Cuervo-Cazurra, Who Cares About Corruption?, 37 J. INT'L BuS. STUD.803, 819 (2006). This also assumes that the enforcement of foreign briberyprohibitions achieves a measure of success in deterring bribery. Deterrence theoriesstem from the notion that law and economics serve to promote social welfare as awhole, and can be promoted through a series of cost and reward calculations. Thisequation is premised upon the idea that individuals will refrain from committing anillegal act due to their fear of being punished. Once the cost of enforcing and imposingthe punishment is weighed against the burden being placed on the taxpayer, the typeof punishment associated with a crime can be manipulated as to make it the mosteffective policy possible. Although this is domestically an effective method, deterrencein an international setting actually increases crime in developing countries rather thandecreasing it. For one, the punishments associated with certain crimes that are notequal in severity can encourage individuals to commit the more severe crime since theultimate penalty is the same. Second, criminalizing a certain action and increasing the"price" associated with it can cause individuals to decide to substitute that crime foranother as the penalty is lower. Ultimately, deterrence methods tend to increase crime

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levels in the host country may not go down, and may even go up.Given the FCPA's unmistakable founding in a concern for overseasinstitution-building, an enforcement regime that fails to reducebribery, and may actually increase it, is self-evidently ineffective.

As the next section will show, these problems are due in large partto anti-bribery's undue reliance on public enforcement. Privateenforcement has, in the U.S. context, compensated for similarshortcomings in the public enforcement of myriad other areas ofwhite-collar crime. However, appreciating the potential upside ofprivate anti-bribery enforcement is a necessary precursor torecognizing the harm of Duty Free.

11. THE NEED FOR PRIVATE ENFORCEMENT

In current global anti-corruption enforcement, states prosecutenatural and legal persons, and states pressure other states to do thesame. But as the following sections will show, the limits on politicalwill and enforcement resources are themselves characteristics of apublic enforcement regime. Introducing a dimension of privateenforcement would circumvent these problems, while also addressingdemand-side bribery as a counterbalance to the current supply-sidefocus, producing a global enforcement regime that more effectivelyreduces overseas bribery. Section A describes the U.S. experience inusing concurrent public and private enforcement to achieve publicpolicy goals, and details its benefits. Section B will briefly describe theimpulse to find a venue for the private enforcement for violations ofthe FCPA, and its obvious shortcomings. Section C will introduceinvestor-state arbitration as a potential new venue for promoting anti-bribery norms.

A. U.S. Experience with Concurrent Public/Private Enforcement

As explained above, the global anti-bribery enforcement regime wasinstigated by passage and then enforcement of the U.S. FCPA. It is alittle-known fact that the FCPA is actually a component of U.S.securities law; the statute is an amendment to the 1934 Securities andExchange Act, thus integrating the FCPA into the context of securitiesfraud enforcement and the broader regime of federal white-collarcrime of which it is a part.46 Both U.S. securities enforcement, and

and then place a larger burden on the taxpayer, thereby failing to achieve any of itsgoals. See Spalding, Restorative Justice, supra note 44, at 361-71.

46 The SEC has always had broad jurisdiction over accounting and disclosure

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myriad other areas of federal law, famously rely on a combination ofpublic and private enforcement.

While concurrent public/private enforcement is deeply embedded inthe federal white-collar regime, this article takes four examples thatespecially illustrate the purposes and benefits of dual-enforcement:securities, antitrust, environmental, and employment law. The benefitsof concurrent enforcement can be sorted into three categories: the firstconcerns available funding for enforcement; the second concerns thesubstantive knowledge and ideas that private enforcement mightaccess or generate; and the third concerns political pressures.

The reliance of U.S. securities law on concurrent public/privateenforcement47 resulted from a recognition of the inherent limitationsof public enforcement to address the variety and complexity ofsecurities transactions. While the government can file civil, criminal,or administrative proceedings against natural and legal persons,48 thesecurities laws expressly provide a number of remedies to privateparties claiming damages,49 and the courts have implied a series ofprivate rights of action.50 As these implied private rights of action grew

standards of U.S. corporations. The FCPA, as it amended the Securities and ExchangeAct of 1934, provided the SEC with a broader range of duties, powers, and jurisdictionthat included the ability to combat the bribery of both foreign and domestic officials.See generally RESOURCE GUIDE, supra note 6 (describing the history of the passage ofthe FCPA).

47 For an excellent description of the SEC's authority, drafted by a formercommissioner, see Joseph A. Grundfest, Disimplying Private Rights of Action Under theFederal Securities Laws: The Commission's Authority, 107 HARV. L. REV. 963, 976-1017(1994).

48 The SEC can prosecute violations of the Securities Act of 1933 ("SecuritiesAct") through administrative or civil enforcement proceedings. 15 U.S.C. § 77a(2012); see id. §§ 78a, 78u, 78aa, 77x, 78ff(a).

49 These include: § 11 of the Securities Act, 15 U.S.C. § 77k (2012), whichimposes liability for misstatements or omissions in registration statements; § 12 of theSecurities Act, 15 U.S.C. § 771, which imposes liability for the sale of unregisteredsecurities and for fraud in the sale of securities; § 15 of the Securities Act, 15 U.S.C.§ 77o, which imposes liability on controlling persons; § 9 of the Exchange Act, 15U.S.C. § 78i (2012), which imposes liability for specified manipulations of exchange-traded securities; § 16 of the Exchange Act, 15 U.S.C. § 78p, which imposes liabilityfor "short-swing" profits; § 18 of the Exchange Act, 15 U.S.C. § 78r, which imposesliability for misleading statements in periodic reports filed with the Commission; § 20of the Exchange Act, 15 U.S.C. § 78t, which imposes liability on controlling persons;and § 20A of the Exchange Act, 15 U.S.C. § 78t-1, which imposes insider tradingliability on contemporaneous traders. See Musick, Peeler & Garrett v. Employers Ins.,508 U.S. 286, 294-96 (1993).

50 These include a number of provisions under the Exchange Act: § 10(b), 15U.S.C. § 78j and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1993), which establish thegeneral antifraud provision under the federal securities laws; § 14(a), 15 U.S.C.

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in number and importance, plaintiff lawyers came to be known as"private attorneys general" (a term first coined in 1943 in a SecondCircuit case51 and used in a U.S. Supreme Court dissent later thatyear52), so-called because they advance public policy goals embeddedin the securities laws by filing claims against alleged violators,typically but not exclusively5 3 in the form of class action lawsuits.54

Private enforcement remains highly robust today as legal reformshave tempered its alleged abuses. The growth of allegedly frivolousand otherwise abusive private filings in the 1970s and 1980s, and theexplosion in both popular and academic commentary, produced and areform movement. The result was the imposition in 1995 of newprocedural barriers including a heightened pleading standard andmandatory stay on discovery.55 Notably, this movement's aim was thecurtailment of abusive private litigation, but not its elimination.Scholars continue to acknowledge 56 that owing to the SEC's inherentconstraints - including limited resources, political pressure, and eventhe danger of agency capture - private enforcement remains criticalto advancing the public policy goal of promoting transparency andfairness in the capital markets,57 concurring with the U.S. SupremeCourt that it is a "necessary supplement" to public enforcement.58

§ 78n(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9, prohibiting fraud in the solicitationof proxies; § 14(e), 15 U.S.C. § 78n(e), and Rule 14e-3, 17 C.F.R. § 240.14e-3,prohibiting fraud in connection with tender offers; and § 13(e)(1), 15 U.S.C.§ 78m(e)(1), prohibiting fraud in connection with an issuer's repurchase of its ownshares. See Grundfest, supra note 47, at 964.

51 Associated Indus. of N.Y. State v. Ickes, 134 F.2d 694, 704 (2d Cir. 1943),vacated, 320 U.S. 707 (1943) ("Such persons, so authorized, are, so to speak, privateAttorney Generals.").

52 FCC v. NBC, 319 U.S. 239, 265 n.1 (1943) (Douglas, J., dissenting).53 In addition to the typical class action lawsuit, private attorneys are sometimes

hired by the U.S. government to litigate on behalf of the public, as occurred in thetobacco cases and the Microsoft antitrust litigation, and are referred to as privateattorneys general. See Carl W. Hittinger & Jarod M. Bona, The Diminishing Role of thePrivate Attorney General in Antitrust and Securities Class Actions Cases Aided by theSupreme Court, 4 J. Bus. & TECH. L. 167, 170 n.32 (2009).

54 See id. at 168.55 See Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, § 101,

109 Stat. 737 (1995).56 See, e.g., Amanda M. Rose, Reforming Securities Litigation Reform: Restructuring

the Relationship Between Public and Private Enforcement of Rule 1Ob-5, 108 COLUM. L.REv. 1301 (2008) (first characterizing the position that private enforcement is a"necessary supplement" to public enforcement as "oft-cited, but undertheorized," andsharply criticizing certain features of private enforcement, but nonetheless proposingno more radical a remedy than SEC authority to screen class action lawsuits).

57 See, e.g., Elizabeth Chamblee Burch, Securities Class Actions as Pragmatic Ex Post

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The private attorney general is likewise active in the enforcement ofantitrust law. From its onset, federal antitrust enforcement restedexplicitly on both private and public enforcement. While publicenforcement authority is shared by the DOJ and Federal TradeCommission ("FTC"),59 Congress also provided a private right ofaction in the federal antitrust laws. These express grants of a privateright of action included the rights to a trial by jury, a provision thatany damages the jury awards are to be trebled by the court,60 andattorney's fees to a prevailing plaintiff.6 1 Scholars have identifiedvarious purposes of the private right of action. Antitrust violations aredifficult to detect, and private parties may have unique access toevidence; treble damages provide that incentive to bring the evidenceto light.62 Obviously, private enforcement aims for general deterrence.Of particular importance to this paper, the legislative history and caselaw make clear that among the most important goals of privateenforcement is compensating the victims of illegal behavior.63 Today,

Regulation, 43 GA. L. REV. 63 (2008) (arguing the SEC is faced with scarce resourcesand agency capture).

58 SeeJ.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964).59 See, e.g., Joseph P. Bauer, Reflections on the Manifold Means of Enforcing the

Antitrust Laws: Too Much, Too Little, or Just Right?, 16 Loy. CONSUMER L. REV. 303, 306(2004) (describing enforcement responsibilities of the DOJ and FTC).

6o Awards of treble damages are very rare, and scholars surmise that settled casesrarely involve more than single damages. See Robert H. Lande & Joshua P. Davis,Benefits from Private Antitrust Enforcement: An Analysis of Forty Cases, 42 U.S.F. L. REV.879, 883 (2008).

61 15 U.S.C. § 15 (2012).62 See, e.g., Frank H. Easterbrook, Detrebling Antitrust Damages, 28 J.L. & EcoN.

445, 449-52 (1985) (providing an economic analysis of damages).63 In 1890, Senator Coke commented upon a bill that provided only for double

damages as follows: "How would a citizen who has been plundered in his familyconsumption of sugar by the sugar trust . .. recover his damages under that clause? Itis simply an impossible remedy offered him.... [H]ow could the consumers of thearticles produced by these trusts, the great mass of our people - the individuals - goabout showing the damages they had suffered? How would they establish the damagewhich they had sustained so as to get a judgment under this bill? I do not believe theycould do it." 21 CONG. REc. 2615 (1890). Similarly, Representative Webb stated thatthe damages provision "opens the door of justice to every man whenever he may beinjured by those who violate the antitrust laws and gives the injured party ampledamages for the wrong suffered." 51 CONG. REC. 9073 (1914). He also stated that "weare liberalizing the procedure in the courts in order to give the individual who isdamaged the right to get his damages anywhere. . . you can catch the offender." Id.;see also Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) ("[The treble damagesremedy was passed] as a means of protecting consumers from overcharges resultingfrom price fixing."). A large number of Supreme Court cases hold that both deterrenceand compensation are purposes of the treble damages remedy. See, e.g., Atl. Richfield

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the ratio of private to public antitrust litigation is 10 to 1.64 AlthoughSupreme Court cases of the last decade evidence a skepticismconcerning the private right of action,65 scholars have noted that theCourt's concerns are not inherent in the concept of privateenforcement, but instead reflect unique features of U.S. civil proceduresuch as notice pleading, broad pretrial discovery, and jury trials.66

Though the private attorney general is perhaps most widelyassociated with securities and antitrust enforcement, numerous otherareas of federal law depend just as heavily on private enforcement, andquite by design. Environmental law, for example, contemplatesprivate-sector suits of two kinds. First, citizen suit provisions providea cause of action for any citizen to file suit against a private, state, orlocal entity for noncompliance, provided a public enforcement actionis not already underway. Myriad environmental laws contain citizensuit provisions. 67 Once a citizen suit is initiated, the EnvironmentalProtection Agency has a right to intervene and prosecute on behalf of

Co. v. USA Petroleum Co., 495 U.S. 328, 360 n.20 (1990); California v. ARC Am.Corp., 490 U.S. 93, 102 (1989); Am. Soc'y of Mech. Eng'rs, Inc. v. Hydrolevel Corp.,456 U.S. 556, 575 (1982); Pfizer, Inc. v. India, 434 U.S. 308, 314 (1978); Ill. Brick Co.v. Illinois, 431 U.S. 720, 746, 748-49 (1977); Fortner Enters. v. U.S. Steel Corp., 394U.S. 495, 502 (1969); see also Lande & Davis, supra note 60, at 881 n.14.

64 Daniel A. Crane, Technocracy and Antitrust, 86 TEX. L. REv. 1159, 1179 (2008).65 See, e.g., Bell Atl. Corp. v. Twombly, 550 U.S. 544, 566-67 (2007); Verizon

Commc'ns, Inc. v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 415-16 (2004).Concerns include the fear of false positives, lack of confidence in judges and juries toachieve correct outcomes, the difficulty federal judges have in managing the costs ofantitrust litigation, and a preference for regulation over judicial intervention. See, e.g.,Edward D. Cavanagh, The Private Antitrust Remedy: Lessons from the AmericanExperience, 41 Lov. U. CHI. L.J. 629, 636 (2010) (examining the private remedythrough the lens of the American system and offering some observations aboutdesigning private remedies schemes in antitrust regimes abroad).

66 See Cavanagh, supra note 65, at 640. A robust academic literature, usingeconomic methodologies, debates the merits of private enforcement. Some scholarsfind that private enforcement has a neutral effect on total enforcement; some find thatit leads to more optimal enforcement; while some contend that private enforcementnegatively affects total antitrust enforcement. See generally id. (discussing the privateright of action).

67 Environmental statutes with citizen suit provisions include: Toxic SubstancesControl Act, 15 U.S.C. § 2619(a)(1) (2012); Endangered Species Act of 1973, 16U.S.C. § 1540(g)(1)(A) (2012); Surface Mining Control and Reclamation Act of 1977,30 U.S.C. § 1270(a)(1) (2012); Deep Seabed Hard Mineral Resources Act, 30 U.S.C.§ 1427(a)(1) (2012); Clean Water Act, 33 U.S.C. § 1365(a)(1) (2012); MarineProtection, Research, and Sanctuary Act, 33 U.S.C. § 1415(g)(1) (2012); EnergyPolicy and Conservation Act, 42 U.S.C. § 6305(a) (2012); Solid Waste Disposal Act,42 U.S.C. § 6972(a)(1) (2012); Clean Air Act, 42 U.S.C. § 7604(a)(1) (2012); andOuter Continental Shelf Lands Act, 43 U.S.C. §1349(a)(1) (2012).

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the government. Citizen enforcers may seek penalties as well ascompliance and mitigation orders, though all penalty money isdeposited with the U.S. Treasury.68 Secondly, a party with standingcan sue for judicial review of agency action under section 702 of theAdministrative Procedure Act ("APA"). APA review actions canchallenge interpretation and implementation of a statute, as well asfailure to take action. 69 Both the legislative and executive brancheshave spoken publicly to the importance of private enforcement as asupplement to public enforcement, in large measure because theprivate sector can bring so many more suits, and exert so much morepressure on would-be violators, than can the public sector.70 Today,the number of actions brought by private enforcement actions isseveral times that brought by the federal government.7 '

Likewise, Congress's "massive"72 reliance on private litigation toadvance the policy goals of employment discrimination law hasimportant lessons for anti-bribery enforcement. The modernemployment discrimination regime arose in 1964 with Title VII of theCivil Rights Act.73 Civil rights advocates wanted strong public

68 See, e.g., Wendy Naysnerski & Tom Tietenberg, Private Enforcement of FederalEnvironmental Law, 68 LAND ECON. 28 (1992) (describing the varying remedies,limitations, and reimbursement procedures that can affect both the level and patternsof litigation activity as well as the compliance consequences); Matthew D. Zinn,Policing Environmental Regulatory Enforcement: Cooperation, Capture, and Citizen Suits,21 STAN. ENVTL. LJ. 81 (2002) (arguing that agency enforcement is often preferable tocitizen suit enforcement).

69 See Bennett v. Spear, 520 U.S. 154, 173 (1997).70 See Clean Water Act Reauthorization: Hearings Before the Subcomm. on Env't and

Natural Res. of the H. Comm. on Merch. Marine and Fisheries, 103d Cong. 212-13(1994) (statement of Steven A. Herman, Assistant Administrator for Enforcement,Environmental Protection Agency); The Water Quality Act of 1994, and Issues Related toClean Water Act Reauthorization: Hearings on H.R. 3948 Before the Subcomm. on WaterRes. and Env't of the H. Comm. on Pub. Works and Transp., 103d Cong. 290 (1994)(statement of Carol M. Browner, Administrator, Environmental Protection Agency);Report of the Committee on the Environment, 19 ENERGY L.J. 181, 192 (1998)("Environmental citizen suits are a very significant aspect of federal environmentalenforcement litigation in terms of both the frequency of these suits and the severity ofthe sanctions imposed . . . citizen suit enforcement under . . . federal environmentalstatutes, such as the CAA, the Resource Conservation and Recovery Act (RCRA), andthe Emergency Planning and Community Right-to-Know Act (EPCRA), is growing.").

71 See, e.g., David R. Hodas, Enforcement of Environmental Law in a TriangularFederal System: Can Three Not Be a Crowd When Enforcement Authority Is Shared by theUnited States, the States, and Their Citizens?, 54 MD. L. REV. 1552, 1609 (1995)(discussing private and public enforcement).

72 Stephen B. Burbank, Sean Farhang, & Herbert M. Kritzer, Private Enforcement,17 LEwis & CLARK L. REV. 637, 691 (2013).

73 See Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e (2012).

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enforcement through administrative adjudicative powers, modeledafter the National Labor Relations Board, with no private litigation.74

However, the Democratic Party, though it held a majority in bothhouses, was divided on the civil rights issue largely between the Northand South. Accordingly, the passage of Title VII depended onconservative Republicans forming a majority with the non-southernDemocrats.75 These Republicans succeeded in stripping the EqualEmployment Opportunity Commission ("EEOC") of the strongerenforcement powers that civil rights advocates had sought, thusexpressing their preference for limiting the growth of bureaucracy aswell as their inherent distrust of the Kennedy and Johnsonadministrations. Congress thus authorized private lawsuits witheconomic incentives such as attorney fee awards for prevailingplaintiffs. 7 6 Accordingly, enactment of Title VII depended on apolitical horse trade in which Republicans accepted private lawsuits inexchange for eschewing public bureaucracy.

As civil rights groups saw private litigation grow dramatically in thefollowing years, they too came to embrace private litigation.77 In 1991,with support of these civil rights groups, Congress augmented theprivate enforcement regime by adding compensatory and punitivedamages and the right to trial by jury.78 This choice was again shapedby the political cleavages in the 1980s between a predominatelyDemocratic Congress and the Reagan administration. 79 The decision topursue private enforcement was thus a result of lack of political will tobuttress public enforcement; this lack of political will was the result ofideological divisions, inter-branch power struggles, and risingconcerns about the bureaucracy's limited energy, resources, andinnovation.80 Between 2001 and 2010, 17,253 employmentdiscrimination suits were filed; of these, 98% were privatelyprosecuted and a mere 2% were prosecuted by the EEOC or DOJ.81 To

74 Burbank, Farhang & Kritzer, supra note 72, at 691. A bill was introduced to thiseffect. Federal Equal Employment Opportunity Act, H.R. 405, 88th Cong. (1st Sess. 1963).

75 Burbank, Farhang & Kritzer, supra note 72, at 691-92 (citing SEAN FARHANG,THE LITIGATION STATE: PUBLIC REGULATION AND PRIVATE LAWSUITS IN THE U.S. 94(2010)).

76 Id. at 692 (citing SEAN FARHANG, THE LITIGATION STATE: PUBLIC REGULATION ANDPRIVATE LAWSUITS IN THE U.S. 95, 101 (2010)).

77 Id. at 693.78 Civil Rights Act of 1991, Pub. L. No. 102-166 § 102, 105 Stat. 1071, 1072-73

(codified at 42 U.S.C. § 1981(a) (2012)).79 Burbank, Farhang & Kritzer, supra note 72, at 694.so Id. at 695.81 Id.

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the extent one believes that employment discrimination enforcementhas resulted in a reduction in discrimination, compensation to victims,and changing workforce culture, those gains are due almostexclusively to private enforcement.

Given a reliance on private enforcement that is both broad and deep,a robust academic literature has emerged to chronicle and debate thebenefits of private enforcement in its myriad manifestations.82 Acatalogue of these benefits shows just how applicable they are to thecurrent anti-bribery enforcement regime. These benefits might besorted into three categories. As indicated above, the first concernsavailable funding for enforcement; the second concerns thesubstantive knowledge and ideas that private enforcement mightaccess or generate; and the third concerns political pressures.

First and most obviously, private enforcement increases the totalamount of enforcement resources available. Government agencies areinherently constrained by the limitations of public budgets.83 Whereprivate enforcement is robust, the aggregate resources devoted toenforcement may greatly exceed available public funding; this hasproven especially true in anti-trust enforcement.84 Moreover, wherepublic enforcement agencies are aware of an effective privateenforcement regime, they may concentrate their efforts in prosecutingcases that do not hold out sufficient incentives to private litigants.85

Put another way, private enforcement distributes the financial burdenof enforcement between public and private sources. This isparticularly attractive where enhancing public enforcement capacity iseither too expensive, or politically unpopular. 86 Although robustprivate litigation will increase the courts' docket and therefore the

82 For an excellent summary of the private enforcement literature, see id. at 643-48.83 See Myriam E. Gilles, Reinventing Structural Reform Litigation: Deputizing Private

Citizens in the Enforcement of Civil Rights, 100 COLUM. L. REV. 1384, 1410 (2000);Susan Rose-Ackerman, Judicial Review and the Power of the Purse, 12 INT'L REV. L. &ECON. 191, 200 (1992); Cass R. Sunstein, What's Standing After Lujan? Of CitizenSuits, "Injuries," and Article 111, 91 MICH. L. REV. 163, 221 (1992).

84 See Kent Roach & Michael J. Trebilcock, Private Enforcement of CompetitionLaws, 34 OSGOODE HALL L.J. 461, 479-91 (1996).

85 See John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model ofthe Lawyer as Bounty Hunter Is Not Working, 42 MD. L. REV. 215, 224-25 (1983);Steven D. Shermer, The Efficiency of Private Participation in Regulating and Enforcingthe Federal Pollution Control Laws: A Model for Citizen Involvement, 14 J. ENvTL. L. &LITIG. 461, 468-69 (1999).

86 See, e.g., SEAN FARHANG, THE LITIGATION STATE: PUBLIC REGULATION AND PRIVATELAWSUITS IN THE U.S. 129-71 (2010) (discussing how private enforcement of the CivilRights Act furthered civil rights at a time where political support and governmentbudgetary concerns made public reform unattractive).

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costs to the public, these costs are not easily traceable by voters andare therefore more politically viable. 87

Substantively, private enforcement taps into sources of innovationand substantive knowledge that is not always available to the publicagencies. Private enforcement is widely recognized as encouraginginnovation. Given the inherently bureaucratic, hierarchical, andpolitically constrained nature of public enforcement agencies, privateattorneys tend to be far more innovative in the legal theories theyadopt, potentially expanding the strategies that public enforcers adopt,not to mention the law itself.88 This may be true not only of thetheories of liability and methods of proof, but also of policyjustifications and solutions.89 Similarly, private enforcers often haveaccess to information that is not available, or at least far less readilyavailable, to public enforcers. Given that the private litigants havebeen directly harmed by the alleged violations and often haveexpertise in the industry, they have information that the publicenforcement agencies often could not access through monitoring.90

Third, private enforcement is less susceptible to political pressuresthat tend to push toward under-enforcement. While regulatedindustries tend to oppose enforcement and to readily concentrate theirlobbying efforts, pro-enforcement interests are often more diffuse.This can result in a disproportionate anti-enforcement influence in thepublic arena and perhaps even in agency capture.91 So too mightperiodic political changes result in ideologically-driven episodes inenforcement. By contrast, private enforcement tends to "producedurable and consistent enforcement pressure." 92 Private enforcementcan also serve to address issues that public enforcement agencies mayhave neglected or overlooked due to political or budgetary constraints.In so doing, private enforcers can "shame or prod" the public agenciesinto action.93 Similarly, private enforcement grants citizens access to

87 Burbank, Farhang & Kritzer, supra note 72, at 663.88 See Michael Selmi, Public vs. Private Enforcement of Civil Rights: The Case of

Housing and Employment, 45 UCLA L. REV. 1401, 1403-04 (1998).89 Burbank, Farhang & Kritzer, supra note 72, at 664-65.90 See Pamela H. Bucy, Private justice, 76 S. CAL. L. REv. 1, 5, 8 (2002).91 See Sanford C. Gordon & Catherine Hafer, Flexing Muscle: Corporate Political

Expenditures as Signals to the Bureaucracy, 99 AM. POL. Sci. REV. 245, 245 (2005);Thomas W. Merrill, Capture Theory and the Courts: 1967-1983, 72 CHI.-KENT L. REV.1039, 1039-40 (1997).

92 Burbank, Farhang & Kritzer, supra note 72, at 664.93 Id. at 665 (citing Frank B. Cross, Rethinking Environmental Citizen Suits, 8 TEMP.

ENVTL. L. & TECH. J. 55, 56 (1989)); Michael S. Greve, The Private Enforcement ofEnvironmental Law, 65 TUL. L. REV. 339, 350 (1991); Zinn, supra note 68, at 133-37.

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opportunities to vindicate their rights, and in so doing increasesdemocratic participation and enhances institutional legitimacy. Oftenthe victims of such abuses are otherwise vulnerable andunderrepresented, and thus private enforcement is a rare chance tohave their voices heard and interests protected. 94 Such citizens becomeless vulnerable to those momentary political trends that are too ofteninfluenced by lobbying efforts in which they cannot afford toparticipate. Private enforcement thus creates a sphere of influence thatis protected from these political pressures. 95

Note the relevance of these benefits to the current conundrum ofanti-bribery enforcement. Uneven enforcement is due in very largepart to constraints on political will and enforcement resources;circumventing these constraints and augmenting resources are amongthe principal benefits of private enforcement. Private enforcementdoes not depend on the political will or resource commitment ofpublic agencies; where a right of action exists, entrepreneurial privateenforcers can seize the opportunity without needing the government'sfinancial or political support. So too will private enforcers have accessto information that poorly funded public investigative agencies cannotdiscover, again compensating for restraints on public resources.

The impulse to augment public enforcement with privateenforcement has found some expression in the anti-bribery context.Companies have indeed been searching for a venue for private anti-bribery litigation. But as the next section shows, the efforts haveheretofore been unsuccessful.

B. The Search for a Private Enforcement VenueThough the FCPA has no private right of action, three forms of

private anti-bribery enforcement have tried to get off the ground.None has made a major impact in the United States, nor will any havemuch impact outside the United States.

94 See Burbank, Farhang & Kritzer, supra note 72, at 666 (citing Susan E.Lawrence, Justice, Democracy, Litigation, and Political Participation, 72 Soc. Sci. Q. 464,472 (1991)); Frances Kahn Zemans, Legal Mobilization: The Neglected Role of the Lawin the Political System, 77 AM. POL. Sc. REv. 690, 695 (1983).

95 This literature is not without its critics and detractors. Criticisms of publicenforcement include that it: empowers judges to make policy when they may lackpolicy expertise; produces inconsistent rulings from courts; undermines the state'sability to articulate a coherent regulatory scheme; undermines prosecutorialdiscretion; discourages voluntary disclosure and cooperation; weakens legislative andexecutive oversight; and lacks democratic legitimacy and accountability. Burbank,Farhang & Kritzer, supra note 72, at 667.

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Shareholders have availed themselves of two mechanisms of privatesecurities enforcement: the class action lawsuit and the shareholderderivative suit. Alleging various claims for common law fraud,Racketeer Influenced or Corrupt Organizations Act ("RICO"), breachof fiduciary duties, or other securities law violations, plaintiffs'attorneys have begun augmenting the public enforcement authority ofthe SEC and DOJ.9 6

However, class actions and, to a lesser extent, shareholder derivativesuits are mainly a U.S. phenomenon. 97 They only seek to hold liablethe very same companies that are already subject to public FCPAenforcement. While these private enforcement mechanisms surelyenhance public enforcement against U.S. companies, they addressnone of the problems of international anti-bribery enforcement. Theydo not increase the capacity of other capital-exporters to enforce theirprohibitions, and apply almost exclusively to companies within U.S.jurisdiction. They do nothing to bring non-U.S. companies within theambit of anti-bribery law, and thus neither promote the globalpromotion of an anti-bribery norm nor help to ensure thatenforcement actually reduces bribery in developing countries. So toodo they reinforce the current disproportionate focus on bribery'ssupply side, an approach of uncertain benefit to the countries wherethe bribes occur.

Yet another nascent form of private enforcement has gained sometraction, but is again a uniquely U.S. phenomenon. The FCPA hasbeen privately enforced under RICO. 98 RICO was passed in 1970 in

96 See, e.g., United States v. Panalpina World Transp. (Holding) Ltd., No. 10-769(S.D. Tex. filed Nov. 4, 2010), available at http://www.justice.gov/criminal/fraud/fcpa/cases/panalpina-world/11-04-10panalpina-world-info.pdf; Complaint at 4-5, Sec.& Exch. Comm'n v. Baker Hughes Inc., No. H-07-1408 (S.D. Tex. Apr. 26, 2007),available at https://www.sec.gov/litigation/complaints/2007/comp20094.pdf. OpinionProcedure Release 08-02 "was issued on a timely basis in the middle of a fast-paced,dynamically changing competition for a foreign target." See Andrew M. Baker, MichaelJ. Barta & Michael G. Pattillo, Jr., Baker Botts Assists Client in ObtainingGroundbreaking FCPA Opinion Release from the Department of Justice RegardingInternational Mergers and Acquisitions Allowing a U.S. Company to Compete on a LevelPlaying Field, BAKER BOTTS LLP, available at http://files.bakerbotts.com/file-upload/documents/FCPAOpinionClientUpdatell2.pdf (last visited Oct. 18, 2015). Historically,the U.S. allowed private enforcement of corruption claims generally through the FalseClaims Act as well as qui tam actions. See Carrington, supra note 2, at 149-54.

97 Martin Gelter, Why Do Shareholder Derivative Suits Remain Rare in ContinentalEurope?, 37 BROOK. J. INT'L L. 843, 847-48 (2012).

98 See generally Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.H§ 1961-1968 (2012) ("RICO"); Notable RICO Decision and Development, FCPAPROFESSOR (Aug. 6, 2013), http://www.fcpaprofessor.com/notable-rico-decision-and-

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response to the growing threat of organized crime in the United States.It prohibits acts such as illegal gambling, bribery, money laundering,counterfeiting, and embezzlement, and provides for civil and criminalpenalties for the prohibited activities performed as part of a continuingcriminal undertaking.99 RICO establishes both criminal and civilliability, and allows civil prosecution by both the federal governmentand by injured private persons.oo Once a person or company has beensubjected to or has resolved a FCPA enforcement action, privateentities, such as injured persons or competitor companies, may bringRICO claims using the FCPA offense as a predicate act. Though RICOdoes not include FCPA offenses as a predicate offense,101 it does listviolations of the Travel Act, 102 which the U.S. government frequentlyuses in connection with foreign bribery prosecutions.10 3 While therehave been a few examples of successful litigation of civil suits forFCPA offenses using RICO, these claims very rarely survive thepleading stage. 104 RICO, like the class action and derivative suit, doesnot seem poised to provide a meaningful supplement to publicenforcement.

Representing yet another tactic, a U.S. congressman has tried, albeitfutilely, to introduce the use of private bribery enforcement to "levelthe playing field" by statute. A Democratic congressman fromColorado introduced in multiple congressional sessions 05 a bill thatwould create a private right of action under the FCPA. It would grantthe right to persons who are already subject to FCPA jurisdiction tosue persons who are not subject to FCPA jurisdiction for overseas

development.99 Id. § 1961 (defining "racketeering activity").

100 Id. §§ 1963-1964.101 See id. § 1961(1)(B).102 See id. § 1952(b) (2012).103 See id. The Travel Act forbids the use of "foreign commerce ... with [the]

intent to ... promote, manage, establish, carry on, or facilitate the promotion,management, establishment, or carrying on of any unlawful activity," and theunlawful activity is performed or attempted. Id. § 1952(a).

104 For a counter example, see Chevron Corp. v. Donziger, 974 F. Supp. 2d 362,582-603 (S.D.N.Y. 2014), in which Chevron Corporation successfully sued Donziger,an attorney for the indigenous people of the Amazon, for FCPA offenses using RICO.Chevron alleged, among other things, that Donziger violated the Travel Act and theHobb's Act (bribery of a foreign judge, fraud, and extortion) and the court found theclaims sufficient for predicate acts under RICO. Id.

105 See Foreign Business Bribery Prohibition Act of 2011, H.R. 3531, 112th Cong.(2011); Foreign Business Bribery Prohibition Act of 2009, H.R. 2152, 111th Cong.(2009); Foreign Business Bribery Prohibition Act of 2008, H.R. 6188, 110th Cong.(2008).

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bribery. The bill states that only "foreign concerns" (a term that doesnot appear in the FCPA) may be liable,106 and defines a foreignconcern as "any person other than" those subject to FCPAjurisdiction. The plaintiff would have to prove essentially threeelements: 1) that the foreign person made a payment otherwiseproscribed under the FCPA; 2) that the payment "prevented theplaintiff from obtaining or retaining business for or with any person;"and 3) that the payment "assisted" the foreign concern in obtaining orretaining business. 0 7 Damages would be three times either the valueof the business that the defendant gained, by virtue of the bribe, or thevalue of the business that the plaintiff lost due to the bribe. 08

This proposal would at least in theory tend toward more uniformglobal compliance with anti-bribery laws. It could potentiallycompensate for the non-enforcement of other capital exporters andpush toward a more uniform bribery regime for multinationalcompanies doing business abroad. However, the bill has provenpolitically unviable, never making it out of committee.1 09 Far morepreferable would be a venue that already existed and required nostatutory authorization, and which companies could access irrespectiveof nationality. Investor-state arbitration just may fit the bill.

C. Looking to Investor-State Arbitration

Investor-state arbitration represents a kind of "grand bargain" thatcapital-importing states make with capital-exporting states, by whichthe importing states voluntarily promise to provide legal protections toforeign capital in order to attract more such capital."o To make thatpromise effective, countries will frequently include a commitment to

106 See H.R. 3531; H.R. 2152; H.R. 6188.107 H.R. 3531; H.R. 2152; H.R. 6188.108 H.R. 3531; H.R. 2152; H.R. 6188109 See Bill Summary & Status 112th Congress (2011-2012) H.R. 3531, LIBR.

CONGRESS, http//thomas.loc.gov/cgi-bin/bdquery/z?d112:HRO3531:@@@X (last visitedFeb. 13, 2013) (explaining that the last major action on this bill was referral to aHouse subcommittee); Bill Summary & Status 111th Congress (2009-2010) H.R. 2152,LIBR. CONGRESS, http://thomas.loc.gov/cgi-bin/bdquery/z?d 111 :HRO2152:@@@X (lastvisited Feb. 13, 2013) (explaining that the last major action on this bill was referral toa House subcommittee); Bill Summary & Status 110th Congress (2007-2008) H.R. 6188,LIBR. CONGRESS, http://thomas.loc.gov/cgi-bin/bdquery/z?dl10:HRO6188:@@@X (lastvisited Feb. 13, 2013) (explaining that the last major action on this bill was referral tothe House Judiciary).

110 See Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: AnEvaluation of Bilateral Investment Treaties and Their Grand Bargain, 46 HARV. INT'L L.J.67, 77 (2005).

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submit to binding arbitration in a bilateral investment treaty, typicallybefore tribunals created under the ICSID pursuant to the WashingtonConvention,"' or the United Nations Commission on InternationalTrade Law ("UNCITRAL") Arbitration Rules.112

These commitments to settlement disputes by arbitration aredesigned to provide a forum less tainted by nationalistic or protectivetendencies of domestic courts. Ultimately, the goal is "the promotionof the respect for the rule of law,"11 3 thereby "promoting foreigninvestment by providing effective protection to foreign investors.""1 4 Itis part and parcel of the broader policy of improving an investmentenvironment and thereby attracting developed-world capital whichcontributes to the economic development of the host state.11 5 In sodoing, it also increases protections for domestic investors by"increasing the State's general standards of business protection"116thereby generally promoting the rule of law.

While approximately 20 ICSID and UNCITRAL cases have seenallegations of corruption, overt judicial reasoning addressing thecorruption claims is scarce. Llamzon speculates that arbitratorsrecognize the unfairness of ruling in favor of the plaintiff where almostcertainly both parties consented to and participated in thecorruption." 7 He finds that in arbitration rulings, "the calibration ofright and wrong is often not viewed by those participating incorruption and by those judging corruption alike solely in terms ofwhat is legal; and that the moral function of decision-making cannotbe reduced to or articulated in its entirety as legal principles.""18Where this is true generally, and the arbitrators do not have at theirdisposal legal principles that render equitable outcomes, the arbitraljurisprudence of corruption becomes "jurisprudence confidentielle,"or "the jurisprudence in the shadows.""l 9 Corruption will be "aconsideration borne in the minds of arbitrators, but the import and

HI See 1965 Convention on the Settlement of Investment Disputes Between Statesand Nationals of Other States art. 36-40, Mar. 18, 1965, No. 8359, 575 U.N.T.S. 159.

112 See UNCITRAL Arbitration Rules, UNCITRAL, http//www.uncitral.org/uncitral/en/uncitral texts/arbitration/2010Arbitrationrules.html (explaining that the UNCITRALprovides a comprehensive set of procedural rules for arbitration).

113 ALoYslus P. L[AMZON, CORRUPTION IN INTERNATIONAL INVESTMENT ARBITRATION ¶1.23 (Loukas Mistelis et al. eds., 2014).

114 Id. ¶ 1.24.115 See id. '11.24.116 Id. 9 1.25."7 See id. 18.14.118 Id. ¶8.22.119 See id. 18.22.

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effect given to those allegations will remain largely unarticulated inthe final award or decision." 120

This paper seeks to facilitate the process of bringing corruption-related arbitral decision-making out of the shadows. It aims to beginbuilding a jurisprudence that more accurately captures the moralintuitions of arbitral panels as well as the nuances of global anti-corruption policy, and in so doing, turn investor-state disputesettlement ("ISDS") into an effective forum for the private enforcementof anti-corruption norms. Were ISDS to become that forum, it wouldsupply many of the benefits that the United States has seen inconcurrent public/private enforcement. Companies could file claimsirrespective of whether their home country was enforcing its ownforeign bribery prohibition, thus compensating for the lack of politicalwill that often explains non-enforcement. So too would companies andtheir counsel bring financial and other resources to enforcementirrespective of how well-resourced other states' enforcement efforts maybe. In both these ways, investor-state arbitration would "level theplaying field" by bringing more actors within the jurisdiction of anti-bribery enforcement. To the extent that the defendants were states,arbitration would also compensate for the present disproportionatefocus on supply-side bribery.

But constructing an alternative to the Duty Free logic will requireattacking each of three legs on which it now rests.

Ill. NEUTRALIZING DUTY FREE

The previous section argued that global anti-bribery enforcementnow needs private enforcement, that companies have been searchingfor it, and that investor-state arbitration could serve that purpose.However, the obstacle now standing in the way of realizingarbitration's potential for private anti-bribery enforcement is DutyFree. This section exposes both the flaws of Duty Free's holding and itsdangers. Section A briefly describes the facts and holding of thearbitral award, and the dangerous trend that it has already produced.Section B identifies and deconstructs the three-legged stool on whichthe Duty Free award rests. Section C begins to sketch an alternativestructure that would better support global anti-bribery policy.

120 Id. 9 8.25.

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A. Duty Free's Danger

The danger of Duty Free lies not just in the weakness of its holding.Rather, it also lies in the prospect of subsequent tribunals relying onits holding, even in the face of materially different facts and applicablelaw. This prospect has already reared its head.

In Duty Free, the claimant World Duty Free ("WDF") was acompany incorporated under the laws of the Isle of Man and owned byNasir Ibrahim Ali. 121 WDF had concluded an agreement in 1989 withthe Kenya Airports Authority, acting on behalf of the government ofKenya, for the construction, maintenance, and operation of duty-freecomplexes at Nairobi and Mombassa International Airports. 122 WDFalso entered into a ten-year lease for the complexes that was to lastfrom 1990 to 2000. WDF was to pay the government $1 million peryear for rent, and WDF spent about $27 million to renovate theairport terminal.123 Ali freely admitted that he made a "personaldonation" of $2 million to the Kenyan president, Daniel Arap Moi,which Ali had been advised was "required" as part of the"consideration" for the agreement.124 Unique among ISDS cases wasthe plaintiffs admission that he had been advised to bribe thePresident, and that he had indeed paid the bribe. Duty Free isultimately noteworthy because it involved a contract with the hostgovernment for a legitimate purpose, and the outcome of the case wasbased on an affirmative finding of bribery. 125

While the parties heavily disputed what happened next and why,there was no dispute as to the ultimate fate of this transaction. Kenyaeventually placed the duty-free complexes into receivership and thenexpropriated WDF's investment completely. 126 WDF then filed a claim

121 World Duty Free Co. v. Republic of Kenya, ICSID Case No. ARB/00/7, 1 62-64(Oct. 4, 2006), 46 I.L.M. 339 (2007). Ali personally owned 10% of the company'sshares, and the remaining 90% were registered under the entity Dinky InternationalSA, 90% of whose shares Ali owned (with his wife owning the remaining 10%).

122 Id. 9 62.123 Id. 7162, 67.124 Id. 9 66. The bribe money was brought to Mr. Moi in a suitcase and left in his

office. When Ali retrieved the suitcase, he found that the cash had been replaced withears of corn, a sign of the President's acceptance of the business proposition. Id. '1 130.

125 See id. T11 130-181.126 See id. 1 74. The disputations as to this sequence of events is most colorful. Ali

contended that Moi and his government used WDF without Ali's knowledge orconsent to perpetrate an international fraud designed to raise campaign funds fromforeign sources for Moi's re-election campaign. Ali further alleged that when he wasmade aware via media inquiries of Moi's use of his company, Ali objected, and onlythen did the government begin the process of seizing ownership and control of his

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in arbitration alleging a number of violations of the originalcontract. 127

Kenya argued that the agreement was unenforceable by virtue ofAli's bribe to Moi. It observed that Kenyan law criminalized the"corrupting" of government officials,128 framing this transaction as acorrupt, aggressive bribe-payor tempting an otherwise innocentgovernment official. It neglected to mention that the solicitation ofbribes is also criminal under Kenyan law. WDF countered that makingsuch payments to President Moi was routine practice in Kenya, rootedin cultural practices of "Harambee"l 29 and widely regarded as a"matter of protocol" among the Kenyan people, even to the point thatKenya's "domestic public policy" made such personal donations "notonly acceptable, but fashionable."130

As the subsequent section will break down in detail, the tribunal'sultimate award rested on the interplay between three asserted legalprinciples. First, there exists a transnational public policy againstbribery.131 Second, while Ali and President Moi both participated inthe bribery (in contravention of public policy) Ali's conduct wasattributable to WDF but Moi's conduct was not attributable to theRepublic of Kenya.1 32 Third, as a matter of contract law, the briberendered the agreement illegal.1 33

Standing alone, Duty Free would likely do little harm. But in asubsequent arbitration award in which corruption was also "explicitlyoutcome-determinative,"134 the tribunal relied heavily on Duty Free'slogic, thus beginning a dangerous pattern. Metal-Tech v. Republic ofUzbekistan 35 differed from Duty Free in important respects: it was

company. Kenya responds that Ali defaulted on rent payments and that Ali's homecountry of the UAE had issued an arrest warrant for financial fraud Ali allegedlycommitted in that country. Id. ¶T 66-72, 83-85.

127 Id. 174.128 Id. 1106.129 See id. T1 120, 133. "Harambee" means "let's pull together" in Swahili and refers

to the Kenyan tradition of mobilizing community resources to tackle social problems,in particular to finance community projects. See id.; see also HARAMBEE,www.harambeeproject.com (last visited Aug. 27, 2015) (defining "Harambee" undermission statement).

130 World Duty Free Co. v. Republic of Kenya, ICSID Case No. ARB/00/7, 9 120(Oct. 4, 2006), 46 I.L.M. 339 (2007).

131 Supra Part L.A.132 Infra Part Ill.A.2.133 Infra Part 111.A.1.134 LLAMZON, supra note 113,9 6.43.135 Metal-Tech Ltd. v. Republic of Uzbekistan, ICSID Case No. ARB/10/3, (Oct. 4,

2013).

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based on a treaty rather than a contract, and did not involve the lawsof England, much less Kenya. Nevertheless, the judgment seemed torely heavily on Duty Free's holding, thus demonstrating theimportance of redirecting this area of arbitration jurisprudence.

Claimant Metal-Tech was an Israeli company that entered into ajoint venture ("JV") with two Uzbek State-owned companies related tomineral production. The joint venture became the subject of criminalproceedings related to the misconduct of its officials, after which theUzbekistan government abrogated the JV's right to purchase rawmaterials and cancelled Metal-Tech's exclusive right to export the JV'srefined product. One of the two state-owned JV partners thenterminated its contract with the JV and initiated bankruptcyproceedings, during which the state-owned partners' claims wereaccepted while Metal-Tech's were rejected. 136 Metal-Tech theninitiated arbitration proceedings under the Israel-Uzbekistan BIT,alleging that Uzbekistan breached its obligations under both Uzbeklaw and the BIT. Uzbekistan countered that the arbitration panellacked jurisdiction because Metal-Tech's investment was obtained byand operated through bribery.137 In particular, Metal-Tech had paidextraordinarily large amounts of money under the guise of"consultancy agreements" to several individuals, one of whom was thebrother of the Prime Minister of Uzbekistan. Finding the paymentsextraordinary in their amount, the lack of evidence showing that theconsultants actually provided services, and the consultants' lack ofqualifications, the tribunal concluded that the agreements were a"sham," amounting to bribery. 138

Because the bribery violated Uzbek law, the arbitral panel followedthe Duty Free precedent in concluding that a claimant whoparticipated in bribery could state no claim for relief, even where thehost state's public officials were complicit. 139 Further mirroring theprior decision, the Metal-Tech panel acknowledged the apparentunfairness of this holding to the claimant: "[ilt is true that theoutcome in cases of corruption often appears unsatisfactory because,at first sight at least, it seems to give an unfair advantage to thedefendant party."140 Nonetheless, the panel adopted precisely theposition of the Duty Free panel, that "the idea, however, is not topunish one party at the cost of the other, but rather to ensure the

136 Id. 19 37-53.137 Id. ¶9 107-110.138 Id. 19 199-218.139 LLAMZON, supra note 113, 9 6.56.14 Metal-Tech Ltd., ICSID Case No. ARB/10/3, ¶ 389.

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promotion of the rule of law, which entails that a court or tribunalcannot grant assistance to a party that has engaged in a corrupt act." 141

Though not involving English or Kenyan law, or implicating the lawof contract, the Metal-Tech holding exactly parallels Duty Free. In sodoing, it creates the very same problems for global anti-corruptionpolicy. If arbitration is to become an effective venue for the litigationof corruption-related claims, the slate must be wiped clean. The nextsection undertakes to do so.

B. Deconstructing the Three-Legged StoolDoctrinally, the Duty Free award rests upon a three-legged stool: 1)

global anti-corruption policy; 2) state liability for official bribery; and3) the law of contract. This subsection deconstructs each of these legs,one at a time.

1. The Common Law of Contract: Reclaiming RestitutionOwing to the agreement's choice of law provisions, the contracts

issues were analyzed under the English common law of contracts.14 2 Aforay into traditional English common law contracts doctrine rendersa subtle, and underappreciated, error in the Duty Free award. Thepanel held that the contract between the claimant and the Republic ofKenya was both voidable and illegal. The former is right, but the latterrepresents a misapplication of English contract law. The difference isnot merely technical or academic. Were Ali's contract with Kenyadeemed voidable, and not illegal, he could still have stated a claimunder an alternative theory of contract (or quasi-contract): unjustenrichment. Recognizing the potential validity of an unjustenrichment claim even where the contract is admittedly procured bybribery would direct the arbitration jurisprudence of corruption alonga very different path.

The panel relied on the prominent English contracts treatise, Chittyon Contracts,43 for its discussion of illegality. It might have read thetreatise just a bit more deeply. The panel first addresses illegality,noting that a contract may be illegal in formation or performance.144The doctrine of illegality at formation applies if "in all the

141 id.142 See World Duty Free Co. v. Republic of Kenya, ICSID Case No. ARB/00/7, 9 159

(Oct. 4, 2006), 46 1.L.M. 339 (2007). The law of Kenya was also invoked, but as acommonwealth country, English law was deemed the law of Kenya.

143 C rITTY ON CONTRACTS (H.G. Beale et al. eds., 30th ed. 2008).144 World Duty Free Co., ICSID Case No. ARB/00/7, 9 161.

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circumstances it would be an affront to public conscience to grant theplaintiff the relief which he seeks because the court would therebyappear to assist or encourage the plaintiff in his illegal conduct."145The panel finds that because Ali freely chose to invest in Kenya andwas advised of the prevalence of bribery, he "chose, freely, to pay thebribe," and now granting him relief for breach of such a contractwould "appear to assist and encourage the plaintiff in his illegalconduct," thus committing the proscribed affront.146

However, though the panel rightly acknowledged the importantdistinction between illegality at formation and at performance, it didnot apply the distinction correctly. The same treatise on which thepanel relied, Chitty on Contracts, explains the distinction further.Illegality at formation means that it cannot be performed withoutcommitting an illegal act.1 47 An example that Chitty provides is acontract for a theater production to be performed without a licensewhen such licenses were required by law; the parties knew at theformation stage that the contract was for an illegal purpose.148 Bycontrast, a contract is illegal as to performance when one or bothparties intends to perform an otherwise legal contract in an illegalmanner.1 49 Chitty cites as an example a contract to transport someequipment; the contract was not itself illegal, but when the moverused a vehicle that could not legally handle the weight, the contractbecame illegal as to performance.150

The contract at issue in Duty Free was neither: it was neither illegalat formation nor at performance. Both categories - illegal atformation and at performance - go to the good or service to beprovided under the contract, not the manner in which the contractwas formed. Illegal at formation means that the good or service to beprovided under the contract was inherently illegal, not that themanner in which the contract was formed was illegal. The contract inDuty Free did not concern an object that was inherently illegal: thatobject, namely, was an otherwise valid license to legally operate aduty-free complex in an airport. Neither did the parties allege that thisvalid and legal agreement became illegal upon performance. Rather,the only wrongful act here was the manner in which the contract was

145 Id. 11161.146 Id. A 178.147 CHITTY ON CONTRACTS, supra note 143, § 16-008.148 See id. (citing Levy v. Yates, 8 A. & E. 129 (1838)).149 Id. § 16-009.150 Id. § 16-0010.

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initially formed, and this is not what the doctrine of illegality concernsin the English common law of contract.

Perhaps fortunately for the panel, illegality was not the onlyprinciple of contract law on which it relied. The other, voidability,proves far stronger, and this has much significance for the ruling'santi-corruption implications. The panel explains at some length thedifference between a void and a voidable contract. A void contractappears to satisfy the elements of a contract but "is in reality sodefective as to make it entirely ineffectual in the eyes of the law. It isfrom the outset empty of content." 151 A voidable contract, by contrast,is "intrinsically valid" but due to the "circumstances of its making" thecourt will not enforce it.152 Here, the injured party has the option ofrescinding the contract, but the contract is not inherently void. Forthat reason, the claimant must take a "positive action to set it aside"but has the option of waiving his right to rescind, and keeping thecontract in force.153 Perhaps surprisingly, given its previous findingthat the contract was illegal, the panel found that Kenya "formallyavoided the [a]greement" in submitting its Counter-Memorial,1 54

apparently concluding that the contract between Ali and Kenya wasvoidable, and not void. That is, the agreement was not inherentlyineffectual and unenforceable, but was unenforceable at the discretionof the respondent and upon its affirmative act of avoidance. 155

While the distinction between void and voidable is not importantfor present purposes, 5 6 the contrast with illegality most certainly is: itmatters for purposes of restitution. Under the English common law ofcontract, a claimant cannot recover under a contract if that contract isdeemed illegal. But where the contract is avoided, the claimant canrecover under restitution principles. 157 Though the panel did notaddress restitution, it made clear that this was only because the

151 World Duty Free Co., ICSID Case No. ARB/00/7, 91164.152 Id153 Id.154 Id. 1 182.155 For a more general discussion of the harms to anti-corruption policy that come

from deeming contracts induced by bribery invalid, see generally Mathias Nell,Contracts Obtained by Means of Bribery: Should They Be Void or Valid?, 27 EUR. J.L.ECON. 159 (2009).

156 It may be important in contract negotiations. See Olaf Meyer, The Formation of aTransnational Ordre Public Against Corruption: Lessons for and from Arbitral Tribunals,in ANTI-CORRUPTION POLIcY: CAN INTERNATIONAL ACTORS PLAY A CONSTRUCTIVE ROLE?229, 241 (Susan Rose-Ackerman & Paul D. Carrington eds., 2013).

157 CHITTY ON CONTRACTS, supra note 143, § 29-077 (citing Parkinson v. Coll. ofAmbulance Ltd., 2 K.B. 1 (1925)).

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claimant had not pled it. 158 This is a most unfortunate strategic choiceon the part of the claimant's counsel.

Restitution is a claim distinct from contract, sometimes called"quasi-contract." As an oft-cited English jurist explained,

any civili[zled system of law is bound to provide remedies forcases of what has been called unjust enrichment or unjustbenefit, that is, to prevent a man from retaining the money of,or some benefit derived from, another which it is againstconscience that he should keep . .. Such remedies in Englishlaw are generically different from remedies in contract or intort, and are now recognilz]ed to fall within a third category ofthe common law which has been called quasi-contract orrestitution. 159

Restitutionary remedies are thus available where the defendant hasbeen unjustly enriched at the expense of the claimant. Restitutiondiffers from contract in that the liability is imposed on the defendant"irrespective of the agreement of the parties."160 Moreover, at commonlaw the defendant's duty to provide restitution may be based upon theinvoluntariness of the transfer. 161 Note the obvious relevance to theDuty Free facts.

The Duty Free panel hinted that any potential restitution claim thatAli might have made (had he so pled) would depend on the existenceof a "legal or equitable property interest" that would in turn requireestablishing title "without relying on his own illegality."1 62 However,the panel failed to recognize that a legitimate property interest is butone of several principles on which restitution may be awarded, and isconceptually distinct from unjust enrichment. English law nowrecognizes several distinct principles upon which restitution may begranted: unjust enrichment is one; the existence of a legitimateproperty interest with which the defendant has interfered is another.1 63

Whether founded upon unjust enrichment or a legitimate propertyinterest, the elements of restitution are quite simple: the defendant'senrichment by the receipt of a benefit; the enrichment occurred at the

158 See World Duty Free Co., ICSID Case No. ARB/00/7, ¶ 184.159 CHITTY ON CONTRACTS, supra note 143, § 29-001 (citing Fibrosa Spolka Akcyjna

v. Fairbaim Lawson Combe Barbour Ltd. A.C. 32, 61 (1943)).160 Id. § 29-002. At equity, restitution has been awarded in particular where the

defendant can be said to have exploited the claimant. See id. § 29-003.161 Id. § 29-002.162 World Duty Free Co., ICSID Case No. ARB/00/7, 1162.163 CHITTY oN CONTRACTS, supra note 143, § 29-017.

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claimant's expense; the retention of the enrichment must be deemedunjust; and the absence of a defense or bar to the claim.1 64 Englishcourts have recognized a variety of grounds on which the enrichmentmay be deemed unjust, including the defendant's unconscionableconduct. 65

The potential applicability of this doctrine to the Duty Free facts isstriking. The claimant could have, and likely should have, pled thatthe Republic of Kenya was enriched by expropriating the duty-freecomplex; that it did so at the claimant's expense; and that retention ofthat investment, absent the showing of a legitimate reason, was unjust.Given a broader policy of promoting foreign investment, suchexpropriation constitutes unconscionable conduct. The fact that theoriginal contract was obtained by bribery would in no way undercutthese claims; restitution does not depend on the existence of anenforceable underlying agreement. Neither would the claimant have todemonstrate that it had obtained title to the duty-free complexeswithout relying on illegality; the claimant would be relying on unjustenrichment principles rather than on the legality of the contract thatgranted him the property interest. That contract may very well be voidor voidable, but this in no way precludes the claimant from pleading avalid unjust enrichment claim.

The Duty Free facts could easily have given rise to an alternativetheory of contract in which the claimant had a protectable interesteven though the contract was obtained by bribery. That it did not wasdue in part to the unfortunate strategic choices of claimant's counseland the limited contractual analysis of the panel. Neither should nowcontrol the future validity of corruption claims in arbitration.

2. State Liability for Official Bribery: The ILC ArticlesThe panel also held that the state was not liable for the conduct of

President Moi. This leg of the Duty Free stool proves no less faulty.The state liability rationale has three potential sources of legaljustification: English and Kenyan law; the arbitral precedents; andinternational law. None of them can justify the panel's holding.

The tribunal finds that Moi "received"166 (note the emphasis here onpassive receipt rather than active solicitation) Ali's bribe and that

164 Id. § 29-018.165 Id. § 29-028 (citing Rowe v. Vale of White Horse DC, [2003] EWHC (Admin)

388, [2003] 1 Lloyd's Rep. 418 (Eng.)).166 World Duty Free Co., ICSID Case No. ARB/00/7, ¶ 169.

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Moi's receipt is "not legally to be imputed to Kenya itself."16 7 It firstheld that "[there is no warrant at English or Kenyan law forattributing knowledge to the state (as the otherwise innocentprincipal) of a state officer engaged as its agent in bribery." 68 Thepanel put the burden of persuasion on WDF to show that the briberycould be attributed to the State; in the absence of any specific law onpoint concerning the State's liability, the panel assumed that the actcould not be thus attributed to the State. This reflects a curious andunfounded choice by the panel. Though it may well be true that no"warrant" existed in English or Kenyan law for holding the Stateliable, neither did the panel provide a warrant for not holding the Stateliable. That is, the law appears neutral on this point: the KenyanConstitution and national legislation appear to be largely silent onwhether and when the State is liable for the conduct of its officials. 69

Neither does English law appear to address the issue conclusively.1 70

167 See id. ' 168. The opinion asserts, but does not explain, that a covert paymentby definition cannot be attributed to the State. Further, because the payment wascovert, the Republic did not make an affirmation or waiver of the bribery; while Moiknew of the bribery scheme, the State did not. See id. ¶ 184.

168 Id. ¶ 185.169 The Constitution of Kenya, while qualifying that its provisions are considered

superior to customary international law in Kenyan courts, nonetheless states, "Thegeneral rules of international law shall form part of the law of Kenya." CONSTITUTION,art. 2 (2010) (Kenya). In addition, the government is bound by the judgmentrendered in ICSID arbitrations. The Arbitration Act, (2012) Cap. A 4/95 § 41 (Kenya);see also Investment Disputes Convention Act, (2012) Cap. 522 § 4 (Kenya) ("Anaward rendered pursuant to the Convention, and not stayed pursuant to the relativeprovisions of the Convention, shall be binding in Kenya, and the pecuniaryobligations imposed by the award may be enforced in Kenya as if it were a final decreeof the High Court.").

170 The State Immunity Act ("Act") is the primary legislation controlling issues ofstate liability in English law. Section 1(1) of the Act grants general immunity to a foreignState within English courts unless the conduct of the State falls within enumeratedexceptions described in subsequent sections of the Act. State Immunity Act 1978, c. 33,§ 1. Relevant to World Duty Free, "[wihere a State has agreed in writing to submit adispute which has arisen, or may arise, to arbitration, the State is not immune as respectsproceedings in the courts of the United Kingdom which relate to the arbitration." Id. §9(1). The statutory language suffers no defect in clarity; English courts have consistentlyheld "the Act is as plain as plain can be." AI-Adsani v. Government of Kuwait (No. 2),[19961 107 I.L.R. 536, 549 (Eng. A.C.).

The Act contemplates that the scope of the "State" extends to "include references to(a) the sovereign or other head of that State in his public capacity; (b) the governmentof that State; and (c) any department of that government." State Immunity Act § 14. Inpractice, English courts regard heads of State as servants or agents of the State suchthat their conduct renders the State liable under the Act. See, e.g., R. v. Bow StreetMetropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No. 3), [2000] 1 A.C.

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The panel thus provided no legal basis for placing this burden on theclaimant. Frankly, it seems to represent a smuggled-in policypreference for releasing the state from liability for its official's bribery.

A second potential legal foundation for not holding Kenya liable forMoi's acts - one which the Duty Free panel did not use - would bethe precedents in investor-state arbitration; but these provide no help.Two arbitration cases touched on the issue of state responsibility, butneither ultimately resolved the substantive question of whether a stateofficial's solicitation and/or acceptance of a bribe can be attributed tothe state.171 Another case dealt with solicited but unconsummated

147 (H.L.), '1 270 (appeal taken from Eng.). This approach parallels traditionalEnglish tort liability theory, which holds the Crown jointly and severally responsible"in respect of torts committed by its servants or agents." Crown Proceedings Act,1947, 10 & 11 Geo. 6, c. 44, § 2(1)(a).

Reading § 9(1) and § 14 together, nothing in the Act immunizes the State fromliability in an international investor-state arbitration if, according to § 9(1)(a), thehead of State acts in his or her public capacity. Few English cases, however, haveaddressed what constitutes a servant or agent of the State acting in a public capacity.The English Court of Appeal (Civil) has suggested that State liability is not imputedfrom a State agent who violates the law while acting in a private undertaking. SeePropend Finance Pty. Ltd. v. Sing, [1997] 111 I.L.R. 611, 613-14 (A.C.). Prior topassage of the Act, the House of Lords had immunized the State from responsibilitywhere public officials were not engaged in a private undertaking. See Rahimtoola v.Nizam of Hyderabad, [19581 A.C. 379, 395-96 (H.L.) (appeal taken from Eng.).English common law recognized absolute state immunity when Rahimtoola wasdecided, whereas the Act permits state liability through its enumerated exceptions. SeeJones v. Saudi Arabia, [2006] UKHL 26, '1 9-10 (H.L.) (appeal taken from Eng.)(upholding state immunity where claims did not fall within any of the Act'senumerated exceptions). English law, however, has not addressed State liability wherea claim falls within the enumerated exception and the State agent acts in a publiccapacity. See generally Zachary Douglas, State Immunity for the Acts of State Officials,82 BRIT. Y.B. OF INT'L L. 281 (2012), available at http://bybil.oxfordjournals.org/content/82/1/281.full#xref-fn-4-1.

17i Southern Pacific Properties v. Arab Republic of Egypt, ICSID Case No.ARB/84/3, (May 20, 1992), 3 ICSID Rep. 189 (1995), is the earliest case that Llamzonreports on where an ICSID tribunal addressed corruption to any significant degree.There, a Hong Kong company and an Egyptian public sector entity formed agreementsto develop two tourist complexes in Egypt. When ancient artifacts were discovered inthe area to be developed, the Egyptian government cancelled the project and placedthe venture in trusteeship. When the claimant alleged an illegal expropriation, Egyptraised the defense that the venture had been formed through bribery. The majorityultimately declined to address the corruption claims either factually or legally, thoughthe dissent argued at length that Egypt had met the burden of proof and that the panelshould have addressed the legal implications of bribery. See LLAMZON, supra note 113,'l 6.71-6.80. Similarly, in Fraport AG Frankfurt Airport Services Worldwide v.Republic of the Philippines, ICSID Case No. ARB/03/25, (Aug. 16, 2007), (ICSID2007), a German company invested in a Philippine company for the construction ofan airport terminal. For a variety of reasons, the Philippine government eventually

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corruption, and produced a holding that juxtaposes with Duty Free inthe most curious of ways. Atypically, it was the investor, and not thestate, who alleged corruption, and did so as his principal claim ratherthan as a defense. The claimant, a UK investor, alleged that the then-Prime Minister of Romania solicited a $2.5 million bribe after formingthe original agreement related to the operation of duty-free stores. 72

When the investor declined to pay the bribe, the government allegedlychanged the regulations concerning duty-free complexes so as toeffectively expropriate the claimant's investment." 3 Ultimately thetribunal concluded that the claimant had not met his burden of proofwith respect to bribery solicitation." However, the panel concededthat the solicitation of a bribe, if proven, would constitute a violationof the fair and equitable treatment obligation under the BIT as well asa violation of international public policy.175

This precedent actually cuts against the Duty Free holding: itsuggests that the state should indeed be held liable for the briberysolicitation of its head of state. Though EDF v. Romania is materiallydifferent in that the claimant had not participated in the briberyscheme, that fact alone may not require a different outcome.Nonetheless, the difference underscores the "near-singularity of WorldDuty Free in the case law.""76 The arbitral precedents ultimatelyprovide no guidance on the question presented in Duty Free: whetherthe state should be liable for the bribery of its head of state where theprivate party was complicit in the bribery.

voided the agreement, and the German investor sued for breach of the investmenttreaty. The Philippines government alleged that the German investor had engaged invarious forms of corruption in violation of Philippine law, thus taking the investmentoutside the protections of the investment treaty. The claimant argued that thegovernment was estopped from asserting the illegality defense because it knew theagreements were illegal. However, the tribunal held that because the agreements werecovert, and not generally known to the relevant government agencies, the State didnot have knowledge of the transaction and therefore the estoppel argument fails. SeeLLAMZON, supra note 113, 11 6.169-6.190.

172 EDF (Services) Ltd. v. Romania, ICSID Case No. ARB/05/13, Award 91 71 (Oct.8, 2009).

173 See id.¶ 69.17 Id. 9 237.175 Id. 91 221. Notably, because the panel ultimately found that the claimant had not

met his burden of proof, its statements concerning state responsibility are dicta. So tooare they basically asserted, with virtually no supporting argumentation. While theprinciple thus endorsed in dicta is normatively agreeable to this author, it must beconceded that the case hardly provides a bedrock precedent for anti-corruption law ininternational arbitration.

176 LLAMZON, supra note 113, 9 10.26.

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A third potential source of law on state responsibility for corruptionis international law, particularly the United Nations' International LawCommission Articles on Responsibility of States for InternationallyWrongful Acts.177 Although the ILC Articles were drafted in the formof a treaty but never adopted,1 78 "international courts and tribunalshave applied the Articles virtually in full, treating them as a functionalequivalent of the customary international law on Stateresponsibility."1 7 9 The ILC Articles lay out general principles of stateresponsibility for wrongful acts, without specifying particular kinds ofviolations (such as corruption).

The Duty Free panel did not rely upon the ILC Articles, or any othersource of international law, in its award; why it avoided this area oflaw is unclear. Part, but only part, of the answer is that the contract atissue contained a choice of law provision that specified English andKenyan law. And Article 42(1) of the ICSID Convention provides that" [tihe Tribunal shall decide a dispute in accordance with such rules oflaw as may be agreed by the parties." 80 However, this does notnecessarily preclude application of the articles insofar as theyconstitute customary international law. While the tribunal was thus toapply English and Kenyan law, customary international law can bedeemed a part of English law.' 8 ' So too does the Kenyan Constitution

177 Id. 9 10.59 (quoting Int'l Law Comm'n, Draft Articles on Responsibility of Statesfor Internationally Wrongful Acts, with Commentaries, in Rep. on the Work of Its Fifty-Third Session, U.N. GAOR, 53rd Sess., Supp. No. 10, U.N. Doc. A/56/10, cmt.150 at46 (2001)).

178 See Daniel Bodansky et al., The ILC Articles on State Responsibility: TheParadoxical Relationship Between Form and Authority, 96 AM. J. INT'L L. 857, 872-73(2002).

179 LLAMZON, supra note 113, 9 10.12.180 INT'L CTR. FOR SETTLEMENT OF INV. DISPUTES, ICSID/15, ICSID CONVENTION,

REGULATIONS AND RULES, art. 42(1) (Apr. 2006).181 In the case of World Duty Free, the issue turns on whether the ILC Articles are

considered customary international law such that the arbitration panel should haveconsulted their guidance when determining whether the President implicated theKenyan government when soliciting bribes from the WDF investor. The ArbitrationTribunal has held up the ILC Articles in the past as a "fair expression" of customarynorms in international law but not customary international law per se such thatarbitrators are compelled to apply ILC Articles when gaps in the applicable State laware present. See Sempra Energy Int'l v. Argentine Republic, ICSID Case No.ARB/02/16, Annulment Proceeding (June 29, 2010) 1 168, available athttps://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docld=DC1550_En&caseld=C8 ("[Tihe ILC Articles, although notconstituting a source of customary law still ... represents a fair expression of suchlaw . . . ."). Where gaps ("lacunae") in the applicable body of law specified in thechoice-of-law provision of either an international arbitration treaty or concessions

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provide that the "general rules of international law shall form part ofthe law of Kenya." 8 2 Accordingly, it appears that the panel made aconscious decision to stay away from international law generally andthe ILC Articles specifically when deciding the question of Kenya'sliability for Moi's solicitation and acceptance of the bribe.

The omission is regrettable,183 because reliance on the ILC Articleswould have produced a very different precedent. Under the ILCArticles, the conduct of any State organ is attributable to the State,irrespective of whether the organ exercises executive, legislative,judicial, or any other functions.184 This is true regardless of theofficial's level of authority within the agency, be it high-level or low-level. 185 That is, whether a head of state such as Moi or a low-leveladministrator or clerk engages in the corruption is irrelevant forattributing responsibility to the State.

Because corruption is generally defined as the abuse of public officefor private gain,1 86 corruption by definition involves a personalmotivation for the wrongful conduct, that is, a motivation to benefit

contract are present, customary international law acts as a gap filler pursuant to ICSIDArt. 45(1). See Andrea K. Bjorklund, Mandatory Rules of Law and InvestmentArbitration, 18 AM. REV. INT'L ARB. 175, 176 (2007); see also LLAMZON, supra note 113,I 10.28 n.51 (citing W. Michael Reisman, The Regime for Lacunae in the ICSID Choiceof Law Provision and the Question of Its Threshold, 15 ICSID REV.-FOREIGN INV. L.J. 362(2000)) (explaining that an ICSID panel should apply international law, inter alia,where the law of the contracting State party to the dispute calls for the application ofinternational law, including customary international law, and where the subjectmatter of the dispute is directly regulated by international law).

182 CONSTITUTION, art. 2 (2010) (Kenya).183 See LLAMZON, supra note 113, cl 10.29.184 Article 4 reads in full, "The conduct of any State organ shall be considered an

act of that State under international law, whether the organ exercises legislative,executive, judicial or any other functions, whatever position it holds in theorganization of the State, and whatever its character as an organ of the centralGovernment or of a territorial unit of the State." Int'l Law Comm'n, Draft Articles onResponsibility of States for Internationally Wrongful Acts, with Commentaries, in Rep. onthe Work of Its Fifty-Third Session, U.N. GAOR, 53rd Sess., Supp. No. 10, U.N. Doc.A/56/10, ch. IV.E.1, art. 4 (2001) [hereinafter 2001 ILC Report].

185 Id. at 31, 39 1 5 (2001) (citing LaGrand (Ger. v. U.S.), Provisional Measures,1999 I.CJ. Reports 9, at 16 9 28 (Mar. 3, 1999)).

186 The language was adopted by the World Bank and is considered the mostcommon substantive legal definition of corruption in circulation. Alternatively, Black'sLaw Dictionary defines corruption more precisely as "a fiduciary's or official's use of astation or office to procure some benefit either personally or for someone else,contrary to the rights of others." Minor variants of either definition appear in variouslegal contexts and scholars disagree whether either is an adequate representation ofthe term. See Spalding, Corruption, supra note 6, at 1388-90 (tracing and analyzing theintellectual roots of modern definitions of corruption and proposing a new definition).

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personally and privately rather than for the benefit of the state. Suchpersonal motives however do not take the conduct outside of the ILCArticles. The Commentary to the ILC Articles makes this clear: "It isirrelevant ... that the person concerned may have had ulterior orimproper motives or may be abusing public power. Where such aperson acts in an apparently official capacity, or under colour ofauthority, the actions in question will be attributable to the State."1 87

The comment cites prior cases to explain that public conduct that isabused for private gain is different from private conduct,188 and crossreferences a separate Article which provides that an official's conduct"shall be considered an act of the State under international law if theorgan, person or entity acts in that capacity, even if it exceeds itsauthority or contravenes instructions."1 89 Indeed, this section almostseems to be drafted with corruption in mind.

Note that these passages are entirely consistent with the dicta inEDF, in which the panel agreed with the Claimant that theunconsummated solicitation of a bribe should be attributed to thestate (but found that the Claimant had failed to meet the standard ofproof for the bribery). Why the Duty Free panel ruled otherwise wherethe act of bribery was consummated is far from clear.

In his leading academic treatise on corruption in arbitration,Llamzon tries to draw from the ILC Articles an inference that the Stateresponsibility question does in fact hinge on whether the corruption isconsummated; he argues that the ILC Articles support the holdings ofboth EDF v. Romania and Duty Free v. Kenya. That is, though the Statebears responsibility for an unrequited bribery solicitation by one of itsofficials, the State is not responsible when the bribe is actually paid:the payor's participation in the bribe thus strips the solicitor's State ofliability for the State official's solicitation and receipt. Put another way,although a State is liable when its official solicits a bribe that is notpaid, the State is not liable when its official solicits a bribe that is paid;the State is liable for unsuccessful solicitation, but not for successfulsolicitation. Given the starting point that is plain in the ILC Articlesand acknowledged by Llamzon - that the State is responsible for itsofficial's abusive acts even when motivated by private gain - thiswould seem a formidable task. The chasm between State liability foran unsuccessful bribe solicitation and lack of liability for a successfulsolicitation is wide indeed.

187 2001 ILC Report, supra note 184, at 42 1 13.188 See id. (citing Francisco Mallkn (United Mexican States) v. United States, 4

R.I.A.A. 173, 173-78 (1927).189 Id. at 45.

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To bridge that gap, Llamzon makes much of the following commentto the ILC Articles:

One form of ultra vires conduct covered by article 7 would befor a State official to accept a bribe to perform some act orconclude some transaction . . . So far as responsibility for thecorrupt conduct is concerned, various situations could arisewhich it is not necessary to deal with expressly in the presentarticles. Where one State bribes an organ of another toperform some official act, the corrupting State would beresponsible either under article 8 or article 17. The question ofthe responsibility of the State whose official had been bribedtowards the corrupting State in such a case could hardly arise,but there could be issues of its responsibility towards a thirdparty ... 190

This comment would seem to admit of a natural and unproblematicreading. When a State official accepts a bribe - note the word"acceptance" and not merely "solicitation" - Article 7 would apply.And Article 7 is precisely the section that explains that an official's actis attributed to the State "even if it exceeds authority or contravenesinstructions."1 91 Quite simply, this comment clarifies what wouldseem to be a rather intuitive notion - that the bribe payor'sparticipation in the bribery scheme does not strip the solicitingofficial's State of responsibility.

The comment further explains that in the rather uncommonsituation in which the bribe payor is not a private citizen but theofficial of another State, the bribe payor's State also becomes liable.1 92

That is, State liability attaches for both the official supply and theofficial demand of bribes. But the solicitor's State would not be liableto the payor's State; this could "hardly arise." Rather, the solicitor'sState could be liable to a third party (presumably a private litigant).Again, this seems a straightforward reading of the comment.

However, Llamzon reads this comment to suggest that the willingparticipation of the bribe payor "may" render a different outcome evenwhere the bribe payor is a private party. He asserts that the willingparticipation of the bribe-paying investor, who knows the State official

190 Id. at 46 n.150; LLAMZON, supra note 113, 1 10.59.191 2001 ILC Report, supra note 184, at 45.192 These articles concern conduct directed or controlled by a State. See id. at 47.

Because these articles are invoked in the comment only to describe a briberytransaction between two states, rather than between a state and a private party, I donot discuss them at length here.

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is acting illegally and for private gain, "arguably negates theapplication of ordinary attribution rules." 193 But Llamzon never clearlyexplains precisely why this is so - that is, why the payor's complicityand knowledge of the solicitor's illegality negates State responsibility.The closest he gets is the recognition that when the payor is anotherState, the solicitor's State is not liable to the payor's State. Llamzonrestates that principle to hold that "[tihe corrupt official's acts are notattributable to the State if the entity invoking such responsibility hadparticipated in the corrupt conduct" 194 But the comment makes clearthis principle applies only where the "entity" is a State. Importantly,this principle follows the comment's plain statement that the Stateofficial's acceptance of a bribe would trigger liability under Article 7.In sum, while Llamzon discusses at some length the distinctionbetween the presence and absence of a knowing and willing bribepayor in investor-state transactions, it remains a distinction without adifference. He simply never establishes the causal link between theinvestor's participation and the negation of state responsibility.1 95

In sum, the Duty Free holding on state liability for an official'scorruption appears to have no legal justification. It is not required byEnglish or Kenyan law; it draws no support in the arbitral precedents;and international law's principle document on state liability almostcertainly recommends the opposite outcome.

3. Anti-Corruption Policy: Dislodging LagergrenThe third leg on which the Duty Free holding rests - anti-

corruption policy - is perhaps the least weak of the three. It, at least,establishes a solid footing in an accurate account of the global anti-corruption instruments. However, the panel's effort to build anargument upon this footing ultimately fails. The award draws uponthe award of the highly regarded Judge Lagergren, a Swedish jurist,who developed an early jurisprudence of corruption in a commercialbribery arbitration case. But in trying to apply the Lagergren logic tothe problem of consummated official bribery, the missile getssideways. Not appreciating the critical differences between a

193 LLAMzoN, supra note 113, 9 10.58.194 Id. 1 10.62.195 For an argument for the importance of recognizing state responsibility in the

arbitration of corruption claims, but that does not involve the ILC Articles, see HilmarRaeschke-Kessler & Dorothee Gottwald, Corruption in Foreign Investment - Contractsand Dispute Settlement Between Investors, States, and Agents, 9 J. WORLD INV. & TRADE 5,15-16 (2008).

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commercial contract for the bribery of a government official and acontract procured by bribery, the Duty Free award undermines thevery policies it claims to advance.

The Duty Free award begins by describing the international (or"transnational") public policy - which it defines as "an internationalconsensus as to universal standards and accepted norms of conduct"- against corruption.1 96 It acknowledges the importance of caution inclaiming the "objective existence" of such a policy and, heeding itsown warning, then takes great pains to document that existence. Thepanel should be commended for the careful choice of words thatfollows. It notes that "bribery or influence peddling, as well as bothactive and passive corruption" are prohibited in virtually everycountry in the world.1 97 Note the careful attention to what is morewidely described as the "supply side" and the "demand side" ofbribery: both the offering and paying of a bribe as well as thesolicitation and acceptance.1 98 The tribunal then provides a litany ofinternational anti-corruption conventions to support the objectiveexistence of a norm against both the supply and demand of bribes.These include the OECD Convention Against Bribery, several regionalinstruments from Europe, the Americas, and Africa, and thenultimately the U.N. Convention Against Corruption.1 99 Notably, theTribunal does not, at the onset, aim to focus its condemnation on

196 World Duty Free Co. v. Republic of Kenya, ICSID Case No. ARB/00/7, 9 139(Oct. 4, 2006), 46 1.L.M. 339 (2007).

197 Id. ¶ 142.198 "Active" bribery refers to the offering and payment, while "passive" refers to the

acceptance; "bribery" and "influence peddling" may refer to either. See id.199 See id. 1 143-45. See generally United Nations Convention Against Corruption,

Oct. 31, 2003, S. TREATY Doc. No. 109-6, 2349 U.N.T.S. 41 (agreeing to adoptmeasures to prevent and combat corruption); African Union Convention onPreventing and Combating Corruption, July 11, 2003, 43 I.L.M. 5 (agreeing to adoptmeasures to prevent, detect, punish, and eradicate corruption); Council of Europe:Civil Law Convention on Corruption, Nov. 4, 1999, E.T.S. No. 174, available athttp://www.conventions.coe.intffreaty/ENfrreaties/Html/174.htm (agreeing to passmeasures that provide remedies to those who suffer damages as the result ofcorruption); Council of Europe: Criminal Law Convention on Corruption, Jan. 27,1999, E.T.S. No. 173 (agreeing to pass measures criminalizing active and passivebribery of government officials); Organisation for Economic Co-operation andDevelopment Convention on Combating Bribery of Foreign Public Officials inInternational Business Transactions, Nov. 21, 1997, 37 1.L.M. 4 (agreeing to adoptstandards criminalizing bribery of government officials in international businesstransactions, focusing on the supply side of bribery transactions); Organization ofAmerican States, Inter-American Convention Against Corruption, Mar. 29, 1996, S.Treaty Doc. No. 105-39 (agreeing to enforce standards preventing, detecting,punishing, and eradicating bribery of government officials).

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either side of the corrupt transaction; it condemns the supply anddemand of bribes alike.

However, the opinion then takes a turn, so subtle that its impact onthe ultimate resolution of the case may at first go unnoticed. Havingdocumented the transnational public policy, it then cites an impressivenumber of arbitral awards where the tribunals had to "consider ...corruption." 200 It begins with the foundational arbitral award issued in1963 by the respected Judge Lagergren. 201 That case involved anagreement between two private parties for the payment of acommission that, in the course of the arbitral hearing, Lagergren cameto believe would be used in substantial part to pay bribes.202 In otherwords, it was a contract between two private parties to bribe a publicofficial. Importantly, it was not a contract between a private party anda government official obtained through bribery. Lagergren concludedthat this contract for the payment of bribes involved "such grossviolation of good morals and international public policy" that thearbitration panel lacked jurisdiction. 203

But the Duty Free tribunal seemingly fails to appreciate a simple butprofound material difference between the facts before Judge Lagergrenand the Duty Free facts. Because it was a contract for the bribery of anofficial, and not a contract with an official procured through bribery, itinvolved neither expropriation nor state bribery. Simply put, neitherof the parties was the state, and expropriation by the state was notimplicated. 204 Similarly, the Lagergren holding could not incentivizethe state official's solicitation and acceptance of a bribe because again,none occurred. While Lagergren's holding disincentivized the supplyof bribes - the panel refused to hear a claim for breach of a contractfor official bribery - it had no bearing on the demand for bribes. Justas with expropriation, the solicitation and acceptance of a bribe wasnot part of the facts that gave rise to Lagergren's jurisprudence.

For both these reasons, the Lagergren holding did not, and couldnot, incentivize or protect official bribery. Because the state had notexpropriated property (or, for that matter, done anything else

200 World Duty Free Co., ICSID Case No. ARB/00/7, ¶ 148.201 The award is reprinted in J. Gillis Wetter, Issues of Corruption Before

International Arbitral Tribunals: the Authentic Text and True Meaning of Judge GunnarLagergren's 1963 Award in ICC Case No. 1110, 10 ARB. INT'L 277,282-94 (1944).

202 See id. at 294.203 World Duty Free Co., ICSID Case No. ARB/00/7, T 148.204 The panel observes, without comment, that in Judge Lagergren's facts neither

party to the case had been able to "reap the fruits of his own dishonest conduct byenriching himself at the expense of the other." Id.

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wrongful) the state is not reaping a reward from a prior act of bribery(as occurred in Duty Free). More fundamentally (and obviously), astate official had not, in the Lagergren facts, solicited or acceptedbribery, so the holding did not serve to provide a defense to statebribery. In both respects - the absence of both an underlying act ofbribery and a subsequent wrongful state action that flowed from priorofficial bribery - the Lagergren logic does not incentivize or protectofficial bribery.

As has been widely noted in the commentary, the Duty Free holdingdoes this very thing. The Republic of Kenya is insulated from thebribery of its former head of state and is able to keep the $30 millionbusiness it expropriated. While others have objected that Duty Freeprotects, if not incentivizes, expropriation, 205 from the perspective ofanti-corruption policy the problem runs far deeper.

Relying on Lagergren, Duty Free exacerbates preexisting problems inglobal anti-corruption enforcement. First, it exacerbates thedisproportionate focus on supply-side enforcement. ICSID, like theDOJ, is left punishing only the supply of bribes to public officials,leaving the demand untouched. Despite the international instruments'focus on both the supply and demand side of bribes, and Duty Free'sclaim of advancing global policy, Duty Free in fact merely reinforcesexisting shortcomings in the global effort to translate policy intopractice.

Second, Duty Free will tend to discourage investment in developingcountries among companies that are subject to a prohibition onforeign bribery. Indeed, the panel explicitly stated that Ali freely choseto pay the bribe - that is, was not pressured to pay it by thegovernment's solicitation - because he freely chose to invest inKenya. Put another way, if he wanted to retain his rights incommercial transactions, he should invest somewhere else. This runscounter both to the original policies behind anti-bribery law as well asto the purposes of arbitration: incentivizing foreign investment indeveloping countries to build those countries' economies and raisetheir legal standards.

Third, the focus on supply-side enforcement, combined with thediscouragement of investing in developing countries, will in turn tendto exacerbate ownership substitution. Because Duty Free does notaddress the demand side, it signals to government agencies that their

205 See Michael A. Losco, Streamlining the Corruption Defense: A ProposedFramework for FCPA-ICSID Interaction, 63 DUKE LJ. 1201, 1233 (2014) (describinghow investigations by the FCPA could incentivize expropriation of assets and is fueledpartially by the award in Duty Free).

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officials may continue to solicit bribes without fear of being heldaccountable in arbitration. Where companies that are reluctant to paybribes are discouraged from entering a market, and that market'sofficials continue to solicit foreign investment and condition thatinvestment upon bribes, these conditions will tend to invite companiesfrom countries that do not enforce foreign bribery prohibitions. Asthis article alluded to above and has been demonstrated elsewhere,this will not always tend to drive down rates of bribery in foreigncountries. Indeed, it may tend to drive them up. And if one assumesthat a corrupt government will tend to perform more poorly for itscitizens, it is precisely those citizens whom the Duty Free logic fails tohelp. They become vulnerable to the predations of companies whobribe without fear of penalty.

Finally, it must not be forgotten that many of the governmentofficials whom Duty Free protects are themselves charged withdeciding whether to enforce domestic anti-bribery laws. In signaling togovernment officials that they will not be held accountable forsoliciting and accepting bribes, so too does it signal that they willcontinue to profit from the non-enforcement of their own laws. As onescholar explained, the state's "monopoly on initiating sanctions underthe criminal law creates a conflict of interest that impedes effectiveenforcement." 206 In this way, Duty Free retards the movement towardeffective domestic enforcement that could otherwise counter theuneven supply-side enforcement and tend to level the playing field.

The panel acknowledged that the effect of its interpretation of thecontract is to provide the Republic of Kenya a complete defense to itsofficer's bribery: the head of state solicited and received the bribe, butthe state would keep the expropriated business and the claimantwould lose his $30 million investment. 207 The tribunal noted that it"remains nonetheless a highly disturbing feature" that the solicitorand recipient of the bribe was Kenya's head of state, and yet theRepublic of Kenya benefitted from the decision. But, it argued, as amatter of public policy and its impact on contract law, "the lawprotects not the litigating parties but the public; or in this case, themass of tax-payers and other citizens making up one of the poorestcountries in the world." 208

206 Abiola 0. Makinwa, Defining a Private Law Approach to Fighting Corruption, inANTI-CORRUPTION POLICY: CAN INTERNATIONAL ACTORs PLAY A CONSTRUCTIVE ROLE?267, 268 (Susan Rose-Ackerman & Paul D. Carrington eds., 2013).

207 See World Duty Free Co., ICSID Case No. ARB/00/7, 9 180.208 Id. '1 180-81. Citing 200-year-old case law, the tribunal maintained that the

validity of this contract interpretation in no way hinged on the injustice of the result

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But this line of reasoning perfectly encapsulates the shortcomings ofDuty Free. However sound Lagergren's logic may be in matters ofcommercial bribery, 209 when applied to contracts with the state inwhich a state official solicited and accepted a bribe, the Lagergrenlogic proves simply disastrous. For the reasons stated above, this logicwill compound the very problems that now plague anti-briberyenforcement. And it is precisely the citizens of poorer countries whowill bear the brunt of these failures.

CONCLUSION

This article has detailed the systemic weakness of the Duty Freeaward, exposing the fundamental flaws in each of its three legalsupports. It has sought to remove the impediment that is Duty Free todeveloping the potential of ISDS as a form of private anti-briberyenforcement. I have been careful to avoid wading into any of the moretechnical questions of arbitration procedure, including the issue ofwhether corruption relates to the jurisdiction of the panel or theadmissibility of the claim; 210 the extent to which the fact-findingcapacities of arbitration tribunals constrain their ability to serve as avenue of private enforcement;211 or the availability of remedies.Accordingly, this article does not purport to provide a comprehensiveblueprint for the arbitration of corruption claims; rather, it hasdeconstructed the stool that now stands, clearing the way for theconstruction of a new and far more effective arbitral jurisprudence ofcorruption.

to the claimant; the panel declared the contract null in the name of the public. Id. H181 (citing Holman v. Johnson, (1775) 1 Cowp. 341, 343). It cited a treatise for thecommon law principle that a plaintiff whose cause of action arises from thetransgression of a positive law "has no right to be assisted;" that is, because theplaintiff violated anti-bribery laws in procuring the contract, the agreement is void andhe has no right against the expropriation. The tribunal explained that "[ilt is uponthat ground the court goes; not for the sake of the defendant, but because they will notlend their aid to such a plaintiff." Id.

209 See, e.g., Mohamed Abdel Raouf, How Should International Arbitrators TackleCorruption Issues?, 24 ICSID REV.: FOREIGN INV. L.J. 116, 119-20 (2009).

210 See, e.g., Zachary Douglas, The Plea of illegality in Investment Treaty Arbitration,29 ICSID REV. 155, 177 (2014) (discussing question of admissibility); DivyaSrinivasan et al., Effect of Bribery in International Commercial Arbitration, 42 INT'L J.PUB. L. & POL'Y 131, 132 (2014) (discussing admissibility, arbitrability, andinvestigative powers).

211 See Carrington, supra note 2, at 163 (arguing that it would be necessary toinclude provisions empowering exposure of governmental records and examination ofwitnesses).

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In so doing, it has challenged the claim, perhaps made mostprominently by Jason Yackee, that Duty Free represents a "zero-tolerance" 212 approach to bribery. A holding that provides an absolutedefense to the state's solicitation and acceptance of bribes does nosuch thing. Rather, it reinforces and exacerbates deep structuralimbalances that now exist in anti-bribery enforcement, whereby selectcapital-exporters enforce prohibitions against those companies subjectto their jurisdiction, while corrupt officials continue to demand bribeswithout penalty and companies from non-enforcing home countriesdo the same. Duty Free represents a zero-tolerance approach to thesupply of bribes, but facilitates the demand side.

So too has this article sought to bring out of the "shadows" theintuition, articulated at such length in arbitration conferences andacademic commentary, and intimated in the Duty Free award itself,that this state of affairs simply does no good. That intuition need notremain clandestine, for it actually stands upon far stronger legalfooting than the Duty Free award. That footing has three components.First, just as a corporation will be held liable for the bribery of its headofficer, so too should a state be liable for the bribery of its chief officer.There is simply no reason why it should not, and ample reason in lawand policy why it should. Second, where a state has taken theadvantage of a contract founded on reciprocal bribery, the aggrievedbusiness may state a claim for unjust enrichment that does not dependupon the enforceability of the underlying contract. Third, global anti-corruption policy condemns with equal force the supply and demandof bribes, and an arbitral jurisprudence that prohibits one whileincentivizing the other does not advance that policy; indeed, it onlymakes current problems in anti-bribery enforcement worse.

A better jurisprudence could make those problems better. It couldcompensate for existing imbalances between supply-side and demand-side enforcement, as well as discrepancies in the amounts ofenforcement resources that capital-exporting countries may or maynot dedicate to anti-bribery law. The benefits of private enforcementcould thus begin to supplement existing public enforcement, and helpto create a truly "level," equitable, and effective global anti-corruptionregime.

So too might a better jurisprudence help to insulate investor-statedispute settlement from one of its most formidable attacks. Perhapsthe most robust criticism of ISDS today concerns its alleged

212 See Jason Yackee, Investment Treaties and Investor Corruption: An EmergingDefense for Host States?, 52 VA.J. INT'L L. 723, 732-33 (2012).

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empowering of corporations to assert rights against host countries thatmay limit those countries' ability to legislate for the public welfare.This is variously framed in terms of encroachments on sovereignty, or"regulatory chill." The flashpoint for this criticism has been thearbitration claims of Philip Morris against Uruguay for requiringprominent health warnings on tobacco packaging.213

But whatever the extent to which investor protections of other kindsmay cause regulatory chill, a protection against corruption would not.An investor's claim against a host country for corruption would notencroach upon any legitimate state prerogative; it would chill nothing,save corruption. Indeed, this may be among the best examples of howempowering foreign corporations to bring claims against hostgovernments would actually enhance the state's capacity to regulatefor the public welfare. It would tend to render governments moretransparent, responsive, and legitimate. Developing a more balancedcorruption jurisprudence may ultimately serve to protect ISDS from itsdetractors and increase the chances of its inclusion in futuretransnational agreements.

213 See Patricia Ranald, Expropriating Public Health Policy: Tobacco Companies' Useof International Tribunals to Sue Governments over Public Health Regulation, 73 J. AuSTL.POL. ECON. 76, 91 (2014).

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